Technical Definition
Collateral
Assets you lock up to secure a loan or a leveraged position, which can be seized if the position falls below its required threshold.
By Crypto University Editorial
Over-Collateralization · Lending Protocol · Liquidation · Oracle · Margin
✦ Key Insight
Your liquidation price depends entirely on which asset you posted and how much you drew against it, so collateral choice is a risk decision, not an administrative one.
✕ Common Misconceptions
Posting collateral correlated with what you borrowed, which makes both legs move against you at once. Also ignoring that a liquid staking token's market price can diverge from its redemption value.
Detailed Explanation
Collateral is what the protocol takes if you cannot repay. Its value is marked continuously against market prices, so a falling collateral price shrinks your borrowing capacity in real time. Different assets carry different collateral factors reflecting their volatility and liquidity.
In Practice
“A borrower posts a volatile token as collateral and finds that a sharp drawdown pushes the position into liquidation far sooner than the same loan backed by a stablecoin would have.”