In crypto-based lending, collateral tokens are often taken to minimize the risk of the lender while borrowing other types of crypto tokens. Basically, the borrower needs to deposit a certain amount of one token in order to receive another.
As of now, there are various collateral tokens that are heavily being used in the crypto market.
With the increasing popularity of decentralized finance (DeFi), collateral tokens can offer the right assistance towards solving higher risks taken by the crypto lender. Even built around the foundation of traditional finance, it can bring forth seamless lending within the crypto ecosystem.