What it means
What a borrower deposits to secure a loan, which the protocol can sell if the loan isn't safe any more.
In DeFi loans are overcollateralised: you put in more than you borrow, for example €150 of ETH to borrow €100 of EURC.
How it works
If the collateral's value falls too far, it's sold in a liquidation.
Related terms
| Term | What it means |
|---|---|
| Liquidation | When a lending protocol sells a borrower's collateral because its value has fallen too close to the loan. |
| Loan-to-value (LTV) | How much you can borrow against your collateral, as a share of its value. |
| Health factor | A number that shows how safe a loan is: above 1 it's safe, at 1 or below it can be liquidated. |
This glossary explains terms in general. It isn't investment, tax or legal advice.