Collateralized Assets

Definition ∞ Collateralized assets are digital holdings pledged as security for a loan or other financial obligation. These assets are locked within smart contracts or controlled by a third party, serving as a guarantee that a borrower will repay a debt. Should the borrower default on their obligation, the collateral can be liquidated to cover the outstanding amount. This mechanism underpins various decentralized finance (DeFi) protocols, enabling lending, borrowing, and the creation of synthetic assets without traditional intermediaries. The value of the collateral typically exceeds the value of the loan to mitigate price volatility risks.
Context ∞ News about collateralized assets often centers on liquidation events during market downturns, changes in collateralization ratios, or the introduction of new asset types acceptable as security. Regulatory bodies are also examining how to classify and oversee these digital assets, given their role in the broader financial system. The stability and risk management of DeFi platforms are directly tied to the robustness of their collateralization systems.