Capital Inefficiency Slows Ecosystem Growth

In many lending platforms (like MakerDAO), users have to deposit more assets than they borrow (often known as "Overcollateralization") to ensure the loan is safe. However, once these assets are locked as collateral, they don't generate any extra income or rewards. This means a large portion of a user's capital just sits there unused, which reduces their overall returns. Because of this, fewer people are encouraged to borrow, and the platform's Total Value Locked grows more slowly over time.