Collateralized Loans

A collateralized loan is a type of loan where the borrower provides an asset as security (collateral) to secure the loan. This means if the borrower fails to repay the loan, the lender has the legal right to seize and sell the collateral to recover their money. Collateralized loans are widely used in traditional finance and have become a cornerstone of Decentralized Finance (DeFi).

How It Works:

• The borrower pledges an asset (e.g., property, car, or cryptocurrency) as collateral.

• The lender evaluates the collateral’s value to determine the loan amount.

• If the borrower defaults, the lender can liquidate the collateral to recover their funds.