CDP

What is the Collateralized Debt Position?

A collateralized debt position (CDP) is the position created by locking up collateral in MakerDao's smart contract to generate its decentralized stablecoin, DAI. This system was introduced to the world of decentralized finance by the MakerDAO team and is the way their DAI decentralized stablecoin is created..

The value of the collateral in a CDP must always exceed 150% of the value of DAI that was used to generate it. If a position is decollateralized, the assets locked in the smart contract will be sold to return the money generated by the DAI, a 13% liquidation penalty, and stability fees..

The DAI generated is basically a decentralized loan backed by the value of the collateral; To unlock the collateral, a user must return the generated DAI plus stability fees..

While MakerDAO introduced CDPs, technically other DeFi projects could adopt CDPs both as a term and as a system in the future..