Staked Collateral

Definition ∞ Staked Collateral refers to digital assets locked within a decentralized finance protocol as security to back a loan or to participate in network validation or governance. This collateral acts as a guarantee, which can be liquidated if the borrower fails to meet their obligations or if the staker acts maliciously. It is a fundamental mechanism for securing value in DeFi and proof-of-stake systems.
Context ∞ The amount of staked collateral is a key metric in assessing the health and security of many DeFi protocols and proof-of-stake blockchains, often discussed in market reports. Debates surround the optimal collateralization ratios and the risks associated with liquidation events during periods of market volatility. Future innovations aim to introduce more dynamic collateral management systems and improved risk assessment models to protect both lenders and borrowers.