Collateralization ratio refers to the value of collateral that backs a loan compared to the value of the loan itself. In the context of crypto lending, it’s usually expressed as a percentage. For example, if a user wants to borrow $1,000 worth of a cryptocurrency and provides $1,500 in collateral, the collateralization ratio is 150%. A higher ratio indicates that the loan is more secure, meaning there’s a larger buffer to cover potential losses if the value of the collateral declines. Conversely, a lower collateralization ratio poses higher risks, as it could trigger liquidation if the collateral’s value falls below a certain threshold. Most platforms enforce minimum collateralization ratios to protect against defaults. Understanding this ratio helps borrowers assess the risk involved in taking loans and ensures lenders are protected from significant losses. As market volatility can impact collateral value, maintaining an appropriate collateralization ratio is essential for both parties involved in the transaction.