Tokenized collateral
A tokenized asset pledged as margin or loan security, allowing collateral to move and be revalued onchain rather than through traditional custody transfers.
Tokenized collateral refers to using tokens that represent assets, such as money market fund shares, Treasuries or stablecoins, to secure derivatives positions, repo or loans. The collateral can be transferred, locked or seized by smart contract or by the venue’s custodian.
Because tokens can settle around the clock, posting and recalling collateral can happen in minutes instead of waiting for banking hours. Yield-bearing collateral also lets traders earn a return on margin that would otherwise sit idle in cash.
For markets this improves capital efficiency and reduces settlement risk in margin calls, though it introduces smart contract, oracle and legal enforceability questions. Example: tokenized money market fund shares such as BUIDL have been accepted as off-exchange collateral by crypto derivatives venues, and JPMorgan built its Tokenized Collateral Network to move pledged fund shares between institutions.
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Part of the BlockWest Glossary, plain-language definitions for markets, AI and digital assets. Educational content, not investment advice.