Collateral
finance · defi
Assets pledged to secure a crypto loan, margin position, or smart contract obligation until repayment.
Collateral is value pledged to reduce a lender's or protocol's loss if an obligation is not met. Crypto loans are often overcollateralized because prices can move quickly and enforcement may be automated. If a required ratio is breached, some or all collateral may be sold, seized, or auctioned under the product's rules.
Collateral quality depends on liquidity, volatility, custody, price-oracle design, liquidation speed, and legal or smart-contract enforceability. A quoted collateral ratio does not eliminate gap risk, fees, liquidation penalties, or contract failure.
Related terms
DeFi
→DeFi uses smart contracts to provide permissionless financial services such as trading, lending, borrowing, and asset issuance.
blockchain · finance · concept
Liquidation
→The forced closure of a leveraged position when collateral falls below required margin.
markets · derivatives
Token
→A transferable or accountable unit defined by a blockchain protocol, smart contract, or application ledger.
blockchain · asset