What is Collateral?
Assets locked to back a loan or a stablecoin, seized if the position falls below its ratio.
Lending protocols require more collateral than the loan is worth, so a price fall triggers liquidation before the protocol loses money.
The safety of the system rests on the collateral quality and the oracle that prices it. Thin or manipulable collateral is how lending markets fail.
Related terms
- LiquidityTrading
How easily you can buy or sell without moving the price: depth, spread and turnover together.
- Price oracleDeFi
The data feed a contract reads to learn an asset's price from outside the chain.
- LiquidationTrading
Forced closing of a leveraged position when its margin falls below the maintenance level.