How do you deal with bad debt in Defi ?

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## How Can Over-Collateralized Loans Incur Bad Debt?

The extreme volatility of the crypto market is one of the reasons why DeFi loans must be over-collateralized by a safe margin. Over-collateralization provides breathing room for a creditor to liquidate bad loans before it has to eat bad debt.

For example, if a loan has a liquidation threshold of 80% loan-to-value (LTV), liquidated assets can drop another 20% before a creditor swallows bad debt. Crypto prices can swing so erratically that it’s possible for an asset to drop by 50% in an hour, so the breathing room provided by over-collateralization is an important feature of DeFi.

Hubble requires users to over-collateralize their borrowing, but it ran into some bad debt due to several reasons. In crypto, anything can happen, and here are just a few ways assets can lose their value and affect the collateralization of a loan….

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