Collateral
Digital assets deposited by borrowers to secure loans in DeFi lending protocols.
What is Collateral?
In DeFi lending, collateral is the digital asset (e.g., ETH, WBTC, or USDC) that borrowers lock in smart contracts to secure loans, protecting lenders from default. Collateral value must exceed the borrowed amount, typically by 150–200%, to account for price volatility, with real-time valuations provided by oracles like Chainlink. If collateral value drops below a protocol’s threshold, liquidation is triggered to repay the loan, ensuring system stability.
As of 2025, protocols support diverse collateral types, including stablecoins and tokenized real-world assets, with Aave v3 enabling over 20 assets per pool. For instance, depositing $1,500 worth of ETH might allow borrowing $1,000 in stablecoins at a 66.7% LTV ratio. Collateralization democratizes credit access without KYC, transforming idle assets into productive capital while mitigating risk through overcollateralization.
Related Terms
UK Stablecoin Regulation
UK's Financial Conduct Authority framework requiring authorization for stablecoin issuance, with 100% backing by high-quality liquid assets.
Semantic Web
A web framework for structured, machine-readable data.
Sequencer of Layer 2
A program or node in a Layer 2 or Rollup blockchain network that orders transactions before they are processed or submitted to the Layer 1 blockchain.
AML/CFT
Anti-Money Laundering and Countering the Financing of Terrorism regulations for financial integrity.
Collateral
Digital assets deposited by borrowers to secure loans in DeFi lending protocols.
Solana Account Owner
The Solana program (smart contract) that has exclusive authority to modify a specific account’s data or state on the Solana blockchain.