What is Collateral Token?

Collateral tokens are tokens employed for various blockchain use cases, acting as a collateralization method for users of the financial services provided by a blockchain network. This can include yield farming, borrowing, staking, lending, and other decentralized finance (DeFi) mechanisms. For example, stablecoins, bitcoin (BTC), ether (ETH), and other crypto assets are often used to maintain the stability of a specific asset type.