Glossary · C
CDP (Collateralised Debt Position)
A smart contract mechanism where users lock crypto assets as collateral to mint (borrow) a stablecoin. The CDP enforces over-collateralisation — you must deposit more value than you borrow — and automatically liquidates collateral if the value falls below the minimum ratio. MakerDAO's Vault (which mints DAI), Liquity's Trove (which mints LUSD), and Curve's crvUSD positions are all CDPs.
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How CDP works in practice
A CDP is a position where you lock collateral and mint a stablecoin against it. Unlike borrowing from a pool of other people's deposits, the debt is created on demand and destroyed on repayment — you are borrowing from the protocol itself.
Worked example
Locking 10,000 of ETH in a CDP at a 150% minimum ratio lets you mint up to about 6,666 of its stablecoin. Repaying the debt burns those tokens and releases the collateral. The supply of the stablecoin is the sum of everyone's outstanding debt.
Figures are illustrative and chosen to be checkable, not live market data.
The mistake that costs people money
Forgetting the stability fee. Interest accrues on the minted debt continuously, so the amount needed to close the position grows over time. A position left untouched for a year needs more repaid than was minted.
CDP: common questions
- What is CDP?
- A smart contract mechanism where users lock crypto assets as collateral to mint (borrow) a stablecoin. The CDP enforces over-collateralisation — you must deposit more value than you borrow — and automatically liquidates collateral if the value falls below the minimum ratio. MakerDAO's Vault (which mints DAI), Liquity's Trove (which mints LUSD), and Curve's crvUSD positions are all CDPs.
- How does CDP work in practice?
- A CDP is a position where you lock collateral and mint a stablecoin against it. Unlike borrowing from a pool of other people's deposits, the debt is created on demand and destroyed on repayment — you are borrowing from the protocol itself.
- Can you give an example of CDP?
- Locking 10,000 of ETH in a CDP at a 150% minimum ratio lets you mint up to about 6,666 of its stablecoin. Repaying the debt burns those tokens and releases the collateral. The supply of the stablecoin is the sum of everyone's outstanding debt.
- What do people get wrong about CDP?
- Forgetting the stability fee. Interest accrues on the minted debt continuously, so the amount needed to close the position grows over time. A position left untouched for a year needs more repaid than was minted.