Collateralisation

Collateralisation is the process of using an asset to secure a loan or financial obligation. In the context of crypto/fiat exchanges, it involves pledging digital assets or fiat currency as collateral to receive a loan or credit. This reduces the lender's risk by providing a safety net in case of borrower default. If the borrower fails to repay, the lender can seize the collateral to recover losses. It is a crucial mechanism in financial markets, ensuring trust and stability in lending practices by protecting both parties involved in the transaction.