repurchase agreements are almost always over-collateralized #2

repurchase agreements are almost always over-collateralized the borrower undervalues the collateral by a percentage (haircut) - this is a buffer against price volatility the purchase and repurchase price are computed over the post-haircut value

so if you have a UST bond worth $100: lender applies a haircut (e.g. 2%) - 100*(1-0.02)=$98 lender sets a repurchase price (e.g. $98.013) so you use your $100 bond to get a $98 loan, for which you must repay with a fee (interest) $98.013

in the end, you get your UST bond back and it makes sense for you to repurchase the bond (collateral) even if the price falls as long as the price fall is < ≈haircut (2% in our case)

repo markets are HUGE - about the size of USD M2! they underpin the global financial system however, there's not many DeFi protocols addressing this part of the market i may pick it up in the near future if you're working on something similar - hit me up!

remember those HUGE repo markets that I talked about? US bonds/treasuries are the favorite collateral for those transactions and that's why they're not going away anytime soon but of course, the financial system is slowly diversifying