Crypto Terms: Letter C

What is Collateralized Debt Position (CDP)?

Collateralized Debt Position (CDP) MEANING:
Collateralized Debt Position (CDP) - a position that is created when collateral is locked into a MakerDAO’s smart contract. It generates the decentralized stablecoin DAI.
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Let's find out Collateralized Debt Position (CDP) meaning, definition in crypto, what is Collateralized Debt Position (CDP), and all other detailed facts.

A collateralized debt position (CDP) is created when collateral is locked into MakerDAO’s smart contract and the decentralized stablecoin DAI is generated. The value of the collateral placed in the collateralized debt position must exceed 150% of the generated DAI value.

In case a position becomes undercollateralized, the assets in the smart contract are sold. The funds are used to pay back the generated DAI, a 13% liquidation penalty, and the stability fees applicable at the time of payment.

DAI acts as a decentralized loan. It is backed by the collateral’s value. If the user wishes to unlock the collateral, they must pay back the generated DAI, as well as additional stability fees. As of February 2022, there are 10 billion DAI stablecoins in circulation.

DAI is an Ethereum-based ERC-20-compatible token. When MakerDAO first launched CDPs, they could only be backed using Ether (ETH). However, CDP now also supports other cryptocurrencies, like USDC, MANA, and ZRX, to name a few. SAI is a decentralized stablecoin backed solely by Ether.

With the growing prominence of CDPs in crypto loans, it is possible that this technology will be adopted by other decentralized finance (DeFi) projects.