Collateralized Debt Position (CDP)

A Collateralized Debt Position (CDP) is a smart contract mechanism in DeFi where a user locks up cryptocurrency as collateral to generate (borrow) a stablecoin or other asset. The most well-known implementation is MakerDAO, where users deposit ETH or other assets to mint DAI stablecoins. If the collateral value drops below the required ratio, the CDP can be liquidated to protect the system.