Collateral Revaluation

Collateral revaluation is the periodic or continuous adjustment of the value of assets pledged as collateral to reflect their current market price. Because crypto assets are highly volatile, the value of the collateral can change significantly, affecting the security of a loan or position.

Protocols must frequently revalue this collateral to ensure that the required collateralization ratio is still met. If the value of the collateral drops, the protocol may require the user to deposit more funds to maintain the position.

This process is critical for protecting the lender or the protocol from the risk of default. It ensures that the value backing the debt remains sufficient regardless of market conditions.

Automated revaluation is a standard feature of modern lending and derivatives protocols.