Fractional banking refers to the practice where financial institutions hold only a fraction of their deposits in reserve while using the majority to issue loans or invest. In the crypto space, this concept translates to platforms that allow users to deposit cryptocurrencies and then lend them out or use them in various ways to generate yield.Users typically deposit their assets into a centralized or decentralized platform. In return, the platform can lend out these assets to borrowers, often for a fee or interest. The original depositors earn interest on their funds, while the platform profits from the difference between what it charges borrowers and what it pays depositors.This system is appealing because it can enhance liquidity and create opportunities for higher returns on digital assets. However, it also carries risks, as the underlying assets may not be entirely secured, leading to potential losses if borrowers default or if there’s a disruption in the system. Thus, while fractional banking can provide benefits, users should exercise caution and assess the platform’s reliability and security.