Collateralized Supply

Definition ∞ Collateralized supply represents the portion of a digital asset’s total circulation that is locked as security within decentralized finance protocols. This locking mechanism enables the issuance of other assets, such as stablecoins, or the securing of loans without traditional intermediaries. It underpins the stability and solvency of many DeFi applications, ensuring that obligations are backed by real assets. The integrity of collateralized supply is paramount for system reliability.
Context ∞ The discussion surrounding collateralized supply frequently addresses the risks associated with liquidation thresholds and the volatility of underlying assets, particularly during periods of market stress. A critical future development involves the diversification of accepted collateral types and the refinement of risk management models to enhance system robustness. Regulatory scrutiny often examines the transparency and decentralization of collateral management practices.