What is Collateral?

Question

What is Collateral?

Accepted Answer

Collateral is an asset or property pledged by a borrower to a lender as security for a loan, which the lender can seize and sell to recover losses if the borrower defaults, fundamentally mitigating credit risk in financial transactions like repurchase agreements (repos) and the emerging field of tokenized real-world asset (RWA) lending.

Collateral

What is Collateral?

What is the primary role of high-quality collateral, such as U.S. Treasury securities, in the multi-trillion dollar global repurchase agreement (Repo) market?

How does the tokenization of Real-World Assets (RWA) transform traditional collateral management and enhance liquidity in decentralized finance (DeFi)?

Why is collateral valuation and margin setting a critical risk management process for both traditional finance (TradFi) and on-chain lending platforms?

What are the key differences between the types of collateral used in secured lending versus those used in central bank operations and open market activities?

Learn More