Bitcoin
Bitcoin
BTC
$96,934.00
1d: +2.11%
7d: +4.11%
$96,934.00
+2.11%
Ethereum
Ethereum
ETH
$1,841.17
1d: +1.78%
7d: +4.23%
$1,841.17
+1.78%
Polkadot
Polkadot
DOT
$4.19
1d: +2.16%
7d: -1.66%
$4.19
+2.16%
Solana
Solana
SOL
$150.03
1d: +0.83%
7d: -0.68%
$150.03
+0.83%
XRP
XRP
XRP
$2.23
1d: +0.62%
7d: +2.07%
$2.23
+0.62%
Shiba Inu
Shiba Inu
SHIB
$0.00001348
1d: +1.08%
7d: -3.18%
$0.00001348
+1.08%

Collateral

Share this article:
x fb linkedin tg
Table of contents
    1. 0.2. How Collateral Works
    2. 0.4. Types of Collateral in DeFi

Collateral in the cryptocurrency context refers to an asset pledged by a borrower to secure a loan or a debt. If the borrower fails to repay, the collateral can be seized by the lender as compensation. In blockchain and decentralized finance (DeFi), collateral is often used to back stablecoins, loans, or other financial contracts.

How Collateral Works

When users borrow funds in DeFi platforms or take out a loan, they are typically required to provide collateral to secure the loan. This collateral can be in the form of cryptocurrencies such as Bitcoin, Ethereum, or other tokens. If the borrower defaults, the platform can liquidate the collateral to cover the debt.

Types of Collateral in DeFi

  1. Cryptocurrency Collateral: The most common form, where digital assets like Bitcoin or Ethereum are used to back loans or stablecoins.
  2. Tokenized Collateral: Digital assets that represent real-world assets like property or commodities, used in certain DeFi platforms.
  3. Over-Collateralization: In many DeFi protocols, users must deposit collateral worth more than the loan they intend to take out, reducing the lender’s risk.