An Over Collateralized asset is one that has been borrowed against another that is worth more.

In the context of decentralized finance (DeFi), over collateralized refers to a situation where an asset is used as collateral for a loan, and the value of the collateral is greater than the value of the loan. This means that the lender has a cushion of value that they can fall back on in case the value of the collateral declines.

In DeFi, over collateralization is often used in the context of decentralized lending protocols, where users can borrow funds by staking an asset as collateral. If the value of the asset falls below a certain level, the lender may be able to sell the collateral to recoup their funds. This helps to protect the lender and reduce the risk of default on the loan.

Over collateralization can also be used in other contexts in DeFi, such as in margin trading, where a trader may need to provide additional collateral to maintain their position. By providing more collateral than is required, the trader can help to protect themselves against potential losses.

Over collateralization is a risk management strategy that can be used in DeFi to protect against potential losses and reduce the risk of default on a loan or other financial obligation.

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