What is collateral?

Learn about what collateral and when it's required.

What is Collateral?

Collateral is a feature designed in Cardano to ensure smart contracts execute successfully, by guaranteeing that resources are always compensated for their work.

In the event that a Smart Contract may fail, collateral is taken to cover the resources used to verify the contract. Unsuccessful smart contract execution is rare, however Cardano seeks to minimise the risk by setting an amount (e.g. 5 ADA) to protect you. Therefore, the only amount that a failed smart contract can take will be the set collateral. It is important to note, that the collateral feature also prevents malicious activity that may want to take your funds by taking no more than the specified collateral amount.

Finally, when a smart contract executes successfully, the collateral is not taken. As long as your collateral is never consumed, you will always have access to these funds if you would like to withdraw it at any time.

Good to Know: Collateral is only required when trading on Dropspot. It is not required to mint and list a collection on Dropspot, as a Verified Creator.