In the realm of blockchain, collateral means the digital assets used as security for a loan. It serves as a form of guarantee for the lender in case the borrower is unable to repay the loan. By providing collateral, the borrower reduces the risk for the lender, as the lender can claim and sell the collateral to recover their funds in the event of default.

Collateralization is a common practice in decentralized finance (DeFi) platforms and lending protocols. The borrower typically locks their collateral in a smart contract, which holds it until the loan is repaid. The value of the collateral is often required to exceed the loan amount, ensuring over-collateralization to protect the lender from potential price volatility.

Collateral acts as a safeguard, providing assurance and mitigating credit risk in various lending and borrowing activities within the blockchain ecosystem.