BB Series (Twenty-Four): Risk Control of Over-Collateralized Lending Function
BounceBit's over-collateralized lending is a practical feature in CeDeFi, allowing users to lend BTC or other assets while reducing risk with a large amount of collateral. Simply put, borrowers provide more than 150% collateral, for example, using ETH to borrow BTC, which can avoid rapid liquidation. The yields for lenders are decent, usually between 5% and 10%, because over-collateralization ensures the safety of the principal.
Risk control is key; BounceBit uses automated mechanisms to monitor the collateral ratio, and if it falls below the threshold, partial liquidation will be triggered to avoid total loss. On-chain oracles provide real-time price data to ensure fairness. Compared to pure DeFi lending, the CeFi custody here enhances asset safety, with regulated Mainnet Digital responsible for storage, reducing hacking risks.
Users participate in lending through stBBTC and can also earn additional DeFi yields. The role of the BB token here is governance, allowing users to vote on adjusting the collateral ratio and optimizing the risk model. However, do not overlook market risk; when BTC prices plummet, the value of collateral can shrink. Therefore, it is advisable to diversify assets and choose conservative ratios.
BounceBit's design balances yield and security, drawing lessons from 2022 to avoid fund misuse. Overall, this feature makes the Bitcoin ecosystem more active, helping holders utilize idle assets without losing control. If you want to dip your toes into lending, first understand the risk parameters, and you'll be able to play it safe.
