Collateral Margin

Collateral Margin in crypto refers to the amount of cryptocurrency or assets that a borrower pledges as security to obtain a loan. This collateral acts as a guarantee for the lender that the borrower will repay the loan. If the borrower fails to repay the loan, the lender can seize the collateral to cover the outstanding debt.

Example:

Alice wants to borrow 10 Bitcoin from a crypto lending platform to invest in a new project. The platform requires her to provide 15 Bitcoin as collateral, which is equivalent to a 150% collateral margin. If the value of Bitcoin falls significantly and Alice is unable to repay the loan, the lending platform can liquidate her collateral to recover the loan amount.

Case:

Bob borrows 100 Ethereum from a decentralized finance (DeFi) platform by locking in 150 Ethereum as collateral. The collateral margin in this case is 150%. However, if the value of Ethereum drops sharply and Bob's collateral falls below the required margin, the DeFi platform may initiate a margin call, requiring Bob to either add more collateral or repay part of the loan to maintain the required collateral margin. If Bob fails to meet the margin call, the platform may liquidate his collateral to cover the outstanding loan amount.