Protected borrowing is now live on Cozy Earn.
You can now borrow USDC against WBTC, cbBTC, and wstETH while enjoying protection from the Cozy Disaster Reserve.
Standard DeFi borrowing already asks users to manage market risk. You choose collateral, monitor your loan-to-value ratio, and accept that market moves can trigger liquidation.
The harder risk to price is infrastructure risk: smart contract exploits, privileged key misuse, bad configuration changes, and failures in required dependencies around the collateral vault.
Protected borrowing makes that narrower category of risk explicit.
Why this matters
DeFi borrowers face more than market volatility.
Contracts break, keys get compromised, dependencies go down. Those aren't price-driven liquidations. Market risk remains the borrower's responsibility. Infrastructure failure is a separate layer.
In November 2020, a single faulty price feed from Coinbase Pro reported DAI at $1.30 while it traded at $1.00 everywhere else. Compound used that feed as its sole oracle. 121 borrowers with properly collateralized positions were liquidated. $89 million, gone. Governance voted against compensating them. Partial restitution covering only the liquidation penalty came ten months later. The borrowers did nothing wrong.
In April 2022, a reentrancy bug in Rari Capital's Fuse lending pools let an attacker drain $80 million in depositor funds. Users who had simply deposited collateral lost everything. Governance voted to reimburse them, then vetoed its own vote, then rejected repayment entirely. Partial compensation came five months later, only because the DAO dissolved.
A bad oracle and a smart contract bug. Two different failure modes, same outcome.
Protected borrowing does not remove borrowing risk. It creates a framework for detecting these types of failures and making users whole.
What's live at launch
Protected borrowing is live for WBTC, cbBTC, and wstETH collateral.
If there's a loss event that is protected by the Disaster reserve, lenders will be repaid. The disaster reserve is intended to protect collateral vaults against exploits and malfeasances. You can view the details in the UMA triggers associated with each vault.
With protected borrowing, Cozy Earn now covers both sides:
- protected lending for USDC depositors
- protected borrowing for collateral-backed borrowers
Explore protected borrowing on Cozy Earn
Borrow rates are variable and not guaranteed. Protected borrowing is a protocol reserve mechanism with defined eligibility criteria and dispute-based resolution, not insurance and not a guarantee of reimbursement. Coverage depends on vault configuration, incident type, whether oracle criteria are met, UMA resolution, claimant procedures, and applicable payout mechanics. Users should review live vault parameters, query terms, and payout mechanics before borrowing. This is protocol information, not individualized financial advice.
