Core Concept - The article emphasizes the importance of distinguishing between good debt and bad debt, highlighting that not all borrowing is detrimental and that strategic borrowing can lead to wealth building and financial stability [1][10]. Good Debt - Good debt is defined as borrowing that contributes to long-term value or improves financial position, often linked to assets or opportunities that appreciate or generate income over time [2]. - Examples of good debt include student loans for marketable degrees, mortgages for property appreciation, auto loans for reliable transportation, home equity loans for property improvements, and business loans for income generation [3][2]. - Good debt must be managed responsibly; exceeding affordability or lacking a repayment plan can turn good debt into a financial burden [2][5]. Bad Debt - Bad debt refers to borrowing that does not enhance long-term value or financial health, often associated with depreciating purchases or high-interest rates [3]. - Common examples of bad debt include credit card debt, which can exceed 20% in interest rates, and payday loans with APRs nearing 400% [4][3]. - Carrying bad debt does not equate to financial failure but indicates that borrowed funds are not working effectively for the borrower [5]. Differentiating Good and Bad Debt - The distinction between good and bad debt lies in purpose, payoff potential, cost, tax benefits, and repayment flexibility [6][8]. - Good debt typically supports wealth building, while bad debt funds short-term wants or depreciating assets [8]. - A quick self-assessment can help determine if a debt will contribute to future wealth or merely provide temporary satisfaction [6]. Managing Good Debt - To utilize good debt wisely, borrowers should have a clear repayment plan and avoid unnecessary financial pressure from discretionary spending [7][10]. - Long-term or high-interest auto loans can become problematic if not managed carefully, leading to negative equity [7]. Strategies for Reducing Bad Debt - Strategies for managing bad debt include prioritizing high-interest balances, consolidating debts, creating a realistic budget, and negotiating with lenders [14][11]. - Building an emergency fund can help maintain loan payments during unexpected financial challenges [13]. - Avoiding new debt while focusing on repayment can facilitate financial recovery and stability [14].

euler and morpho still carrying $137m and $68m in bad debt from xusd collapse. hardcoded oracles at $1 prevented liquidations when it depegged to $0.28. $285m total across defi protocols remains unresolved. lending capacity permanently reduced. next leverage unwind hits protocols with zero buffer. ...

It doesn’t take a black swan to unravel a protocol. 🦢All it takes is thin liquidity, bad timing, and leveraged exits.We’ve seen it play out before with Terra, CRV, Fraxlend.Our latest blog post deep-dive breaks down:🔹 Why cascading liquidations snowball.🔹 How risk concentration spirals into bad debt.🔹 What most DeFi protocols miss in design. ...