The crypto lending is lending crypto or stablecoins against the crypto collateral. If the borrower will default, then the crypto collateral will be liquidated. The proceeds will be used to fulfill the borrower’s obligations (principal and interest payments).
The collateral ratio shows how big is the value of the collateral to the loan. The higher this ratio the more the borrower has to put down his assets for lending a certain amount of funds.
Crypto lending has very high collateral ratios. In DeFi – Decentral Finance – these are around 350% – 700%. This is explained by the volatility of the collateral and everybody seems to accept this without questioning. The other explanation is that DeFi is using simplified risk management approaches.
SmartCredit.io viewpoint is slightly different – the collateral ratio should be 2x less than in the DeFi protocols. This means the borrowers could borrow on SmartCredit.io platform 2x more compared to the DeFi protocols.