Collateral is an asset that is used as guarantee and/or as an incentive to fulfill an obligation.

When taking out a loan on a DeFi platform, the borrower typically needs to provide some form of collateral to secure the loan. If the borrower fails to repay the loan, the lender can seize the collateral to recoup their losses. This helps to reduce the risk of default on the part of the borrower, and it allows lenders to offer loans with lower interest rates.

Collateral can be in the form of cryptocurrency, stablecoins, or other forms of digital assets.

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