Collateral
Crypto you lock up as a guarantee when borrowing. If you can't repay, the lender keeps your collateral instead.
Example
Depositing $150 worth of ETH to borrow $100 of stablecoins. If ETH drops too much, your collateral gets sold.
Advanced Concepts
⚙️How It Works
- 1
Deposit Collateral
Lock up crypto assets in a lending protocol
- 2
Borrow Against It
Receive a loan worth less than your collateral (e.g., 66%)
- 3
Monitor Health
Keep your collateral value above the minimum threshold
- 4
Repay or Liquidate
Pay back your loan to unlock collateral, or lose it if prices drop
📊Key Numbers
50-75%
Typical LTV
loan-to-value ratio
80-85%
Liquidation Threshold
when collateral gets sold
150%+
Overcollateralization
standard for volatile assets
5-15%
Liquidation Penalty
extra loss when liquidated
⚠️Risks & Warnings
- •Market crashes can liquidate your position before you can add collateral
- •Liquidation penalties mean you lose more than just the loan amount
- •Gas fees during high volatility may prevent you from topping up collateral
- •Smart contract bugs could lock or drain your collateral