Collateral

An asset that a borrower pledges as a guarantee to secure a loan or financial contract within a smart contract vault. In the crypto ecosystem (especially in DeFi lending protocols), borrowers are typically required to provide more collateral than the amount they wish to borrow to mitigate risk (Over-collateralization). If the market value of the collateral drops below a specific threshold, the smart contract automatically liquidates the asset to repay the debt.