Collateral
Also known as: DeFi Backing Asset, Secured Loan Asset, Collateralized Token
Assets pledged as security for borrowing or minting in DeFi protocols, used to guarantee loan repayment or stability.
Collateral in the context of DeFi and blockchain finance refers to assets locked in a protocol to secure loans, mint stablecoins, or provide liquidity. The borrower must maintain a minimum collateralization ratio to avoid liquidation. Common collateral types include ETH, BTC, and stablecoins. Protocols like MakerDAO, Aave, and Compound use over-collateralization to protect lenders and ensure system solvency. Collateralized positions are monitored in real-time, and automated liquidation mechanisms kick in if asset values drop below thresholds. Risk, volatility, and asset quality determine the required collateral ratio.