Collateral is crypto you lock up to back a loan or a minted asset. DeFi lending is over-collateralized by default: deposit $150 of ETH to borrow $100 of stablecoins, because no bank is coming to collect if you default — the contract just sells your collateral. Why it matters Collateral quality decides whether DeFi lending survives a crash. Volatile collateral + falling prices = cascading liquidations, which is how "safe" protocols blow up in a weekend. Always know what's backing what you're holding — especially "stable" assets. Related terms DeFi · liquidation · stablecoin
Collateral is crypto you lock up to back a loan or a minted asset. DeFi lending is over-collateralized by default: deposit $150 of ETH to borrow $100 of stablecoins, because no bank is coming to collect if you default — the contract just sells your collateral.
Why it matters
Collateral quality decides whether DeFi lending survives a crash. Volatile collateral + falling prices = cascading liquidations, which is how “safe” protocols blow up in a weekend. Always know what’s backing what you’re holding — especially “stable” assets.
Related terms
DeFi · liquidation ·
stablecoin