Active Collateral Standard

Definition ∞ An active collateral standard defines the operational status and eligibility of assets used as security in financial agreements. This metric assesses whether collateral is currently engaged in supporting an obligation, rather than merely being held. It verifies the real-time utility and liquidity of pledged assets within a system. This ensures that backing assets are genuinely available and performing their risk mitigation function.
Context ∞ The discussion around active collateral standards frequently centers on enhancing financial stability in decentralized finance by demanding transparent, verifiable, and continuously liquid collateral arrangements. Regulators and protocol developers are scrutinizing these standards to mitigate systemic risk and improve market confidence. Future developments aim for automated, oracle-verified collateral status updates across various blockchain networks.