CDP

A collateralized debt position, a smart contract mechanism in DeFi that allows users to borrow digital assets by locking collateral.

What is CDP?

A Collateralized Debt Position (CDP) is a smart contract-based system used in decentralized finance (DeFi) protocols, such as MakerDAO, to enable users to lock digital assets as collateral and borrow other assets, typically stablecoins, against them. Introduced by MakerDAO in 2017, a CDP is created when a user deposits assets like ETH or WBTC into a smart contract, which then mints a borrowed asset (e.g., DAI) up to a certain collateralization ratio, often 150% or higher, to ensure over-collateralization. For example, locking $150 worth of ETH might allow borrowing up to $100 in DAI. Users repay the borrowed amount plus interest (stability fees, e.g., 2-5% annually) to unlock their collateral. As of September 2025, MakerDAO’s CDP system, now called Vaults, holds over $7 billion in collateral, with DAI’s circulating supply at $5.6 billion.

CDPs are integral to DeFi lending, enabling trustless borrowing without intermediaries, but they carry risks like liquidation if collateral value falls below the required ratio (e.g., 130% for ETH in MakerDAO), triggering automatic sales to cover the debt. Other protocols, like Aave and Compound, use similar mechanisms, though they may not explicitly use the term “CDP.” MakerDAO’s system, for instance, supports 20+ collateral types, including real-world assets (RWAs) via partnerships, with $1.2 billion in RWA collateral as of 2025. Despite robustness, CDPs face challenges like oracle failures (e.g., the 2020 “Black Thursday” $8.3 million MakerDAO loss) and market volatility, mitigated by diversified collateral and improved price feeds.