Fractional reserve banking refers to a banking practice where banks hold only a fraction of their deposits in reserve and lend out the remainder. In cryptocurrency, this concept can manifest in decentralized finance (DeFi) platforms that offer lending and borrowing services.In a typical scenario, a user deposits cryptocurrency into a lending protocol. The platform retains a portion of the deposit as collateral but lends out the rest to other users, often at a higher interest rate. This allows the platform to generate profits while users earn interest on their deposits.However, this practice carries certain risks. If too many borrowers default on their loans or if there is a sudden rush of withdrawals, the platform may struggle to meet its obligations. The lack of regulation and oversight in the crypto space can exacerbate these risks, making it crucial for users to conduct thorough research before participating in such systems.Overall, fractional reserve banking in this space can enhance liquidity and yield opportunities but also introduces significant risks that users must understand and manage.