What is Collateral?
In DeFi lending, collateral is the cryptocurrency you deposit to secure a loan. If your collateral value drops too low, it can be liquidated.
Collateralization Ratio
Most DeFi loans are overcollateralized. You must deposit more value than you borrow. Typical ratios range from 120% to 150%.
Liquidation
If collateral value falls below the required threshold, the protocol automatically sells it to repay the loan.