Introduction to the "Overcollateralized Loan" Pattern (DeFi primitive) and its Security Considerations

Introduction to the “Overcollateralized Loan” Pattern (DeFi primitive) and its Security Considerations

Hello everyone,

I recently gave a presentation introducing folks to the “overcollateralized loan” pattern seen so often in DeFi projects. It was originally intended as an internal presentation, but we figured it may be useful to other people who want to learn more about it.

This is a very common DeFi primitive used in all kinds of projects: Maker/DAI, Compound, Synthetix, etc etc. It’s used for decentralized loans, derivatives projects, stable coins, etc.

It is a useful, flexible, and powerful pattern, and it has become quite common. It’s worth learning about if you aren’t already familiar with it.

The presentation starts with an introduction to the idea of “overcollateralized loans” in general, along with some basic terminology and concepts. It should be accessible to people without a strong technical background.

And the second half (from time 28:10 on) covers security considerations for projects using this pattern. This may be useful for security auditors who have not yet encountered this pattern in their audits, or for designers of new projects who are thinking about implementing this primitive.

This is an unedited recording of a presentation that was originally going to be kept internal – so it’s not as polished as it would have been had I known it would be made public. There are some typos in the slides and I misspoke a few times. So I apologize for that.

The recording can be watched here (53 mins):

And the slides can be found here: