Dynamic collateral refers to the use of collateral that can change based on market conditions or specific protocol parameters. Unlike static collateral, which remains fixed, dynamic collateral adjusts to ensure that the value backing a loan or financial transaction is always appropriate relative to current market values.In practice, this means that if the value of the collateral decreases, the system can require additional collateral or liquidate some assets to maintain the desired loan-to-value ratio. Conversely, if the collateral value increases, users might be allowed to borrow more against it or withdraw some of their collateral.This adaptability is crucial for the stability and security of decentralized finance (DeFi) platforms, where price volatility can significantly impact both collateral values and user positions. By implementing dynamic collateral, platforms aim to minimize risks associated with price fluctuations and protect both borrowers and lenders effectively. It creates a more resilient financial ecosystem, promoting trust and engagement among users.