Collateral

How it is used

Most DeFi loans are overcollateralized: you might lock 150 dollars of ETH to borrow 100 dollars of stablecoins. Typical phrases: post or deposit collateral, collateral ratio, collateral factor, add collateral. Stablecoins are also described as fiat-collateralized or crypto-collateralized.

Example sentences

1. I deposited ether as collateral and borrowed stablecoins against it.

2. When prices fell, many borrowers rushed to add collateral before their loans were liquidated.

Common collocations

• deposit collateral
• collateral ratio
• add collateral
• overcollateralized loan
• use as collateral

Related terms

• liquidationThe forced closing of a leveraged position or a loan when the value of the collateral falls below a required level, so that the lender or the exchange does not lose money.
• leverageThe use of borrowed funds to open a trading position larger than your own money. It is shown as a ratio such as 10x and makes both gains and losses bigger.
• stablecoinA crypto token designed to keep a steady price, usually one US dollar, backed by cash and bonds, by other crypto or by an algorithm. It is used for payments, trading and moving money between platforms.
• oracleA service that brings outside information, such as asset prices, sports results or weather data, onto a blockchain so that smart contracts can use it.
• DeFiShort for decentralized finance: financial services such as lending, borrowing and trading that run on smart contracts instead of through banks or brokers. Users keep control of their own wallets.

This word in other fields

The same English word can have a different meaning in another field:

• collateral · Finance & Banking

More terms: DeFi & NFTs

• NFT
• decentralized exchange
• liquidity pool
• automated market maker
• yield farming