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Collateral Meaning

Collateral is an asset pledged by a borrower to secure a loan or financial obligation. Its purpose is to reduce the lender’s risk by providing a claimable asset in case the borrower fails to repay the debt. If default occurs, the lender has the right to seize and liquidate the collateral to recover the outstanding amount.

In traditional finance, collateral often takes the form of cash, securities, real estate, or other tangible assets. In crypto markets, collateral is typically digital assets such as cryptocurrencies or stablecoins, locked either on centralized platforms or within smart contracts.

Collateral plays a critical role in crypto lending, margin trading, and derivatives markets. Because cryptocurrency prices are highly volatile, crypto loans are usually overcollateralized, meaning the value of the collateral exceeds the value of the loan.

This buffer protects lenders from sudden market moves that could otherwise leave them underexposed. If the value of collateral falls below a predefined threshold, the borrower may face liquidation, where the collateral is automatically sold to cover the loan.

This process is often enforced programmatically in decentralized finance (DeFi), removing the need for manual intervention. Collateral is fundamental to trust-minimized financial systems, allowing lending and leverage to exist without relying on borrower creditworthiness or centralized enforcement.

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Important Disclaimer:

Finery Markets BVI Limited (“Finery Markets”) provides software, technology infrastructure, and related Information and Communication Technology (ICT) services on a Software-as-a-Service (“SaaS”) basis. Finery Markets acts solely as a software vendor and does not operate a trading platform, does not intermediate, match, execute, clear, or settle transactions, and does not engage in any activities that would require regulatory authorisation under applicable laws.

Finery Markets’ software is non-custodial and is provided exclusively to licensed institutional entities that act as independent operators of their own environments. All counterparties are solely responsible for establishing and maintaining their own bilateral trading and settlement relationships. Finery Markets is not a party to any such arrangements and assumes no responsibility for the conduct, verification, or compliance obligations of any users of the software.

Nothing on this website shall be construed as a financial promotion, investment advice, or an offer to engage in regulated activities. Access to and use of the software is strictly limited to clients who have entered into a software licensing agreement with Finery Markets. Persons located in jurisdictions where such access is restricted should not rely on this website or any of its contents.

Additional notice to UK visitors: This website and associated communications are not intended to constitute a financial promotion under The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) and related guidance. Access to services provided by Finery Markets is limited to regulated entities, professional clients and eligible counterparties as set out by the Financial Conduct Authority. UK users are not permitted to use this website for the services of Finery Markets if they don't fall within these categories.