YIELDS & RETURNS

Collateral (Loan Collateral)

Definition

Collateral is an asset pledged as security for a loan. In DeFi, users deposit collateral to borrow other assets, with smart contracts automatically managing the collateral and liquidation process.

Example

💡 Example

To borrow $1000 USDC, you might deposit $1500 worth of ETH as collateral to maintain a safe collateralization ratio.

Risks to Consider

⚠️ Risks
  • Price volatility
  • Liquidation risk
  • Smart contract risk

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