How Does the Concept of “Collateral” in Financial Derivatives Relate to Locked Liquidity?

In financial derivatives, collateral is an asset pledged by a borrower to secure a loan or a trade, reducing the counterparty risk for the lender or exchange. Locked liquidity serves a similar function in crypto, acting as a form of security for investors.

By locking the underlying assets, the developers are essentially collateralizing the project's token with the base asset, ensuring the capital cannot be immediately withdrawn.