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Leveraged lending in DeFi (Decentralized Finance) refers to the practice of borrowing additional assets or funds to increase one's exposure to a particular investment, enabling the potential for higher returns. This is done using decentralized financial protocols and smart contracts on blockchain networks, such as Ethereum.

00:00 - CoinSutra Intro
00:08 - DeFi Introduction
01:06 - DeFi Leverage lending
02:38 - DeFi Lending example
04:04 - Sonne Finance (lending protocol)
07:06 - DeFi Leverage lending risks & challenges
12:09 - Quick recap
13:10 - DeFi protocol documentation & research
16:30 - Sonne Finance token
17:37 - Ending note

In the context of DeFi, leveraged lending typically involves the following steps:

➤ Collateralization: The user deposits an asset (e.g., a cryptocurrency like Ethereum) as collateral in a DeFi lending protocol (such as Aave, Compound, or MakerDAO). The deposited collateral allows the user to borrow another asset, usually a stablecoin like DAI or USDC.

➤ Borrowing: Based on the value of their collateral, the user can borrow a certain amount of the desired asset. The maximum amount that can be borrowed depends on the collateralization ratio set by the lending protocol.

➤ Investment: The user takes the borrowed funds and invests them in other opportunities within the DeFi ecosystem (e.g., liquidity provision, staking, yield farming, or trading).

➤ Return and repayment: If the user's investment generates a return higher than the interest rate charged on the borrowed funds, they can repay the loan and keep the remaining profit.

However, if the investment underperforms or the value of the collateral decreases, they may face liquidation or have to add more collateral to maintain their position.

Leveraged lending in DeFi allows users to maximize their potential returns but also comes with higher risks. Borrowers must consider potential downsides, such as liquidation or margin calls, before engaging in leveraged lending activities. It is essential to understand the mechanics of the DeFi protocols and monitor positions closely to manage risk effectively.

#defi #lending

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The content published on CoinSutra Channel is for informational, educational, and recreational purposes only and should not be considered to be legal, tax, accounting, or any other professional advice. I'm not a professional financial adviser and you should always do your own research. I may hold the cryptocurrencies talked about in the video.