The collateralized debt position (CBP) can be achieved by locking collaterals within a smart contract to generate stablecoins. The concept of CDP was introduced to the world of De-Fi by MarkerDAO.
In order to generate a stablecoin, the collateral value that needs to be locked in the CDP should always exceed 150% of the value of the DAI. In case any position gets undercollateralized, it comes with its own consequences as well.
The asset locked, gets sold in order to pay for the DAI generated with 13% as liquidity and penalty charge along with a stability fee of 8.5% P.A. In other words, the generated DAI acts as a decentralized loan backed by the current valuation of the collateral.