Physical Asset Collateral

Definition ∞ Physical Asset Collateral involves using tangible, real-world assets, such as real estate, precious metals, or art, as security for a loan. In the context of decentralized finance, this requires tokenizing these assets or establishing verifiable off-chain proof of ownership. This mechanism enables traditional assets to secure digital loans, bridging conventional financial markets with blockchain-based credit systems. It offers a way to unlock liquidity from illiquid physical holdings.
Context ∞ The discussion surrounding physical asset collateral in crypto centers on its potential to significantly expand the scope of decentralized lending by tapping into a vast pool of real-world value. A key debate involves the legal complexities of transferring ownership or lien rights for tokenized physical assets across jurisdictions. Future developments are focused on creating robust legal frameworks, reliable oracle solutions for asset valuation, and secure custody arrangements to facilitate the widespread adoption of this collateral type.