In general, a CDP is a type of loan that is secured by collateral. In the context of DeFi, this might involve using cryptocurrencies such as Ethereum (ETH) as collateral to take out a loan in a stablecoin, such as Dai.
CDPs can be useful for a variety of purposes, such as allowing people to access liquidity without having to sell their cryptocurrencies, or for enabling the creation of complex financial instruments. However, it is important to note that taking out a CDP also carries risks, such as the possibility of liquidation if the value of the collateral falls below a certain threshold.
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