> In traditional finance, if you have borrowed money to buy some stocks, and the stocks have gone down, your broker will call you up and say “hey could you post more collateral.” Ideally you post the collateral and everything is fine. Sometimes you don’t, and your broker sells the stocks at hopefully a high enough price to pay off your loan. But sometimes you say “sorry, I can’t post any more collateral today, but I can try tomorrow,” and your broker gives you another day.
> In decentralized finance, if you have borrowed money (stablecoins) to buy some crypto, and the crypto has gone down, a robot sells your crypto at hopefully a high enough price to pay off your loan, automatically and without bothering to call you.
Because everything is "smart-contracts" and automated, there is basically no buffer between being under and over leveraged, so market swings are much rougher than in traditional finance.