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
Ethereum.org
The official community-driven website serving as a comprehensive guide and resource hub for Ethereum users, developers, and builders.
Jupiter on Solana
A decentralized exchange aggregator on the Solana blockchain that routes trades across multiple DEXs to optimize prices and minimize slippage for SPL token swaps.
Impermanent Loss(IL)
The unrealized financial loss experienced by a liquidity provider in a decentralized exchange (DEX) trading pair when the price of one token diverges significantly from the other, compared to holding the tokens outright.
Lean Ethereum
A visionary Ethereum Foundation initiative unveiled in July 2025 to harden and scale the Ethereum protocol through minimalism, formal verification, and hash-based post-quantum cryptography.
Gas Limit of a Block
The maximum total gas allowed for all transactions included in an Ethereum block.
Health Factor (Lending)
A metric indicating the safety of a borrower’s loan relative to collateral value.