An over-collateralized pool is a financial structure where the value of collateral exceeds the value of the assets being secured. In this setup, borrowers deposit more collateral than the amount they want to borrow. This is common in decentralized finance (DeFi) platforms.The primary purpose is to reduce the risk of default. If the borrower fails to repay, the excess collateral can be liquidated to cover the debt. This ensures that lenders remain protected and helps maintain the pool’s stability.For example, if someone wants to borrow $100 in a crypto loan, they might need to provide $150 worth of collateral. This approach attracts lenders, as their risk is minimized. However, it can create challenges for borrowers, who must lock up significant assets to access smaller loans.Overall, over-collateralized pools play a crucial role in promoting trust and security in lending platforms, allowing users to engage in more secure borrowing and lending practices.