Collateral
Assets pledged to back a loan or position, with value measured against the amount borrowed.
Assets pledged to back a loan or position, with value measured against the amount borrowed.
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Sep 2026 · Freshness Score: 50%
What is Collateral?
Assets pledged to back a loan or position, with value measured against the amount borrowed.
- Category
- concept
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- Authority Node
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- 1
A borrower deposits collateral, and the protocol allows them to borrow up to a loan-to-value ratio. If the collateral's price falls, the position can be liquidated to repay the loan. Volatile assets require higher collateralization ratios t
Collateral is what makes undercollateralized trust possible in a trustless system: lenders are protected because loans are always backed. It also powers stablecoins and margin trading. Choosing appropriate collateral and ratios is central t
Knowledge Graph
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Overview
Collateral is an asset pledged to back a loan or financial position. In DeFi, it is usually held in a smart contract and measured against the amount borrowed. Its value determines borrowing capacity and the risk of liquidation.
How It Works
A borrower deposits collateral, and the protocol allows them to borrow up to a loan-to-value ratio. If the collateral's price falls, the position can be liquidated to repay the loan. Volatile assets require higher collateralization ratios than stable ones.
Why It Matters
Collateral is what makes undercollateralized trust possible in a trustless system: lenders are protected because loans are always backed. It also powers stablecoins and margin trading. Choosing appropriate collateral and ratios is central to protocol risk design.
Related Concepts
Collateral is the basis of Lending, Loan-to-Value, and Liquidation, and it underpins Crypto-Backed Stablecoins and Collateralized Debt Positions.
Frequently Asked Questions
What is Collateral?
Assets pledged to back a loan or position, with value measured against the amount borrowed.
How does Collateral work?
Collateral is an asset pledged to back a loan or financial position. In DeFi, it is usually held in a smart contract and measured against the amount borrowed. Its value determines borrowing capacity and the risk of liquidation. A borrower deposits collateral, and the protocol allows them to borrow
Why does Collateral matter in Web3?
A borrower deposits collateral, and the protocol allows them to borrow up to a loan-to-value ratio. If the collateral's price falls, the position can be liquidated to repay the loan. Volatile assets require higher collateralization ratios than stable ones. Collateral is what makes undercollateraliz