Escrowed Collateral

Collateral

Escrowed collateral refers to assets held by a neutral third party or, more commonly in decentralized finance, by a smart contract, to secure a financial obligation or derivative contract. These assets are locked and released only upon the fulfillment of specific conditions or the resolution of a dispute. The purpose is to mitigate counterparty risk by ensuring that sufficient funds are available to cover potential liabilities. It underpins the security of many lending, borrowing, and derivative platforms.