What Is Collateralisation?

Collateralisation allows individuals to unlock more from their assets. In essence, by offering collateral, they can then borrow more from a lender. If the borrower is unable to repay their loan or defaults on it, the lender can seize the asset that was offered as collateral.

When it comes to cryptocurrency, there are various decentralised applications (dapps), such as Tectonic, that allow users to collateralise their assets and borrow from the various pools on the protocol. Collateralisation is one of the most common practices in cryptocurrency and modern finance. It’s amongst the most popular ways to offer lenders insurance when taking up a loan.

Key Takeaway

Collateralisation refers to the practise of using one asset as insurance in order to borrow another asset or secure a loan.

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