🔄 Protocols & Platforms

CDP

CDP (Collateralized Debt Position)

Smart contract where collateral is deposited to mint or borrow stablecoins

Definition

A Collateralized Debt Position (CDP) is a smart contract where a user deposits collateral to mint or borrow stablecoins. Popularized by MakerDAO (deposit ETH, mint DAI), CDPs are the backbone of decentralized stablecoins and on-chain lending. The position must remain overcollateralized or it gets liquidated. CDPs enable leverage, stablecoin minting, and capital-efficient borrowing.

CDP (CDP (Collateralized Debt Position)) is a protocol term used to understand Smart contract where collateral is deposited to mint or borrow stablecoins. In practice, it matters because it affects how users evaluate protocols, compare opportunities, and avoid hidden assumptions.

Example

On MakerDAO, you open a CDP by depositing $3000 of ETH and minting 1500 DAI (200% collateralization). If ETH drops and your ratio falls below 150%, your position is liquidated.

How it works

In practice, the concept shows up like this: On MakerDAO, you open a CDP by depositing $3000 of ETH and minting 1500 DAI (200% collateralization). If ETH drops and your ratio falls below 150%, your position is liquidated.

Why it matters

CDP matters because small misunderstandings in DeFi can turn into bad pricing, liquidation, governance, custody, or smart-contract risk. A good mental model helps you compare protocols without relying on marketing language.

What to check

Treat it as a protocol primitive: understand deposits, withdrawals, accounting, oracle use, admin powers, and liquidation paths. The main checks are: Liquidation risk; Collateral volatility; Smart contract risk; Stability fee changes.

Risks to Consider

Liquidation risk
Collateral volatility
Smart contract risk
Stability fee changes

Common Questions

What's the difference between a CDP and a regular loan?

A CDP lets you mint new stablecoins against your collateral, while a regular DeFi loan borrows existing assets from a lending pool. CDPs create new supply; lending pools redistribute existing supply.

What does CDP mean in DeFi?

CDP means Smart contract where collateral is deposited to mint or borrow stablecoins. The useful question is not only the definition, but how the mechanism changes risk, return, liquidity, or governance for the user.

How is CDP used in practice?

A practical example: On MakerDAO, you open a CDP by depositing $3000 of ETH and minting 1500 DAI (200% collateralization). If ETH drops and your ratio falls below 150%, your position is liquidated.