What is the meaning of 'haircut' in the context of digital assets?

3 answers

• Jan 08, 2022 · 3 years ago
  A 'haircut' in the context of digital assets refers to a reduction in the value of an asset used as collateral. When a borrower uses digital assets as collateral for a loan, the lender may apply a haircut to the value of the assets to account for potential price volatility or liquidity risks. This haircut acts as a buffer to protect the lender in case the value of the collateral drops significantly. The specific percentage of the haircut varies depending on the asset and the lending platform.
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• Jan 08, 2022 · 3 years ago
  Imagine you're at a barbershop, and instead of getting a stylish haircut, you end up with a trim that's a bit shorter than what you expected. Well, in the world of digital assets, a 'haircut' is somewhat similar. It refers to a reduction in the value of the assets used as collateral. This reduction acts as a safety net for lenders, protecting them from potential losses due to price fluctuations or liquidity issues. So, if you're planning to use your digital assets as collateral, be prepared for a potential haircut!
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• Jan 08, 2022 · 3 years ago
  When it comes to digital assets, a 'haircut' is a term used to describe the percentage reduction in the value of the collateral. Let's say you want to borrow some funds and use your digital assets as collateral. The lending platform may apply a haircut to the value of your assets to mitigate the risk of price volatility. For example, if your collateral is worth $100, and the haircut is 20%, the lender will consider the collateral value as $80. This ensures that the lender is protected in case the value of the assets decreases. At BYDFi, we also implement haircuts to safeguard our platform and users.
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