Collateral
DeFi
Assets pledged to secure a loan or leveraged position.
Collateral is the asset you pledge to back a loan. When prices drop or interest grows, your health factor can fall. If it gets too low, the protocol will sell some collateral to repay debt. Choose assets with strong markets and keep a safety margin.
Frequently asked questions
What makes good collateral?
Assets with deep liquidity and lower volatility. Protocols set higher collateral factors for stronger assets.Can collateral earn yield while pledged?
Some protocols support yield bearing collateral. Be careful with risks from stacked complexity.How do I monitor health?
Track your health factor and set alerts for price moves. Keep extra buffer to avoid forced liquidations.