Collateral Check

Definition ∞ A collateral check is a process that verifies the adequacy and validity of assets pledged as security for a loan or financial position. This assessment ensures that the value of the collateral meets or exceeds the required threshold, mitigating default risk for the lender. In digital asset markets, these checks are often automated through smart contracts, continuously monitoring the collateral’s value against the outstanding debt. Failure to maintain sufficient collateral typically triggers liquidation events.
Context ∞ Collateral checks are a central element in decentralized lending protocols and margin trading platforms within the crypto domain. News often covers instances of liquidations resulting from significant market volatility, where collateral values fall below maintenance levels. The discussion frequently involves the effectiveness of automated liquidation mechanisms and the need for robust oracle systems to provide accurate price feeds for collateral assessments.