📚 DAY 14 - Learn all Crypto terms in 30 days
🔹 1. Collateral
→ The asset you lock up to borrow other assets.
💡 Example: Lock 1 ETH to borrow 150 USDC on Aave.
📌 Each protocol has different collateralization ratios.
⚠️ If the price of the collateral token drops significantly → at risk of liquidation.
🔹 2. Rehypothecation
→ When the platform uses the assets you deposit to continue to collateralize or lend to a third party.
💡 Example: You deposit ETH → the platform uses that ETH as collateral elsewhere.
📌 Helps increase system liquidity, but has chain risk if the other party defaults.
⚠️ Very common in CeFi (Celsius, BlockFi…) which has caused collapses during market crashes.
🔹 3. Liquid Staking
→ A form of staking where you still receive representative tokens (e.g., stETH) for further use.
💡 Staking ETH on Lido → you receive stETH → can still use stETH to farm or borrow.
📌 Earn staking rewards while utilizing capital.
⚠️ Risks come from price volatility of the representative token (may deviate from peg).
🔹 4. Governance Token
→ Tokens used to vote on development proposals for the protocol.
💡 Example: Holding UNI allows you to vote on changing transaction fees on Uniswap.
📌 Some tokens also grant profit-sharing rights or DAO direction.
⚠️ Voting is often manipulated by “whales” if token distribution is not reasonable.