Collateralization
Also known as: Collateral, Crypto Collateral
Locking assets to secure a loan or financial position in DeFi.
Collateralization is the process of locking digital assets—such as ETH, BTC, or stablecoins—to secure loans, derivatives, or derivative positions in decentralized finance (DeFi) protocols. If a borrower fails to repay, the collateral can be liquidated to cover the loan. Collateralization enables trustless lending, margin trading, and synthetic asset creation. Over-collateralization protects lenders from volatility, but users face risks like liquidation thresholds, price slippage, and smart contract failures.