Credit Risk

Credit Risk is the risk of a counter-party not meeting their financial obligations. Since much of DeFi is automated and anonymous, this is slightly less relevant than in traditional finance, but there are cases when it must be considered.

Based on this, most DeFI Lending Protocols (e.g. Aave) introduce the concept of Overcollateralized Loans, thus trying to account for the volatility of the underlying crypto assets that are deposited to get a crypto loan.