Cryptoasset Collateral

Definition ∞ Cryptoasset collateral refers to digital assets, such as cryptocurrencies or tokens, pledged as security for a loan or other financial obligation. This collateral is locked in a smart contract or held by a custodian to guarantee the fulfillment of a debt. Should the borrower fail to meet their obligations, the collateral can be liquidated to cover the outstanding amount. It is a fundamental component of decentralized lending and borrowing protocols.
Context ∞ Cryptoasset collateral is a central topic in decentralized finance (DeFi) news, particularly concerning lending platforms and stablecoin mechanisms. Market volatility frequently leads to discussions about collateralization ratios, liquidation risks, and the overall stability of protocols relying on these assets. Regulatory bodies are also examining cryptoasset collateral in the context of financial stability and consumer protection, influencing the design and operation of digital asset products.