# Collateral

In DIVA Protocol, collateral refers to the asset that is deposited into a contingent pool to back the value of the position tokens. The protocol offers support for a wide range of ERC20 tokens to serve as collateral, including popular options like DAI, USDC, USDT, WBTC, WETH, as well as interest-bearing tokens such as [Compound's cDAI](https://edge.app/blog/company-news/interest-bearing-tokens-in-edge-atokens-ctokens/#:~:text=The%20interest%2Dbearing%20tokens%20have,from%20the%20Compound%20money%20market.) or wrapped staked ETH ([wstETH](https://help.lido.fi/en/articles/5231836-what-is-wrapped-steth-wsteth)).

To qualify as collateral, an ERC20 token must meet the following criteria:

* **Decimal precision:** The token's decimal precision must be between 6 and 18.
* **No transfer fees:** The token must not charge fees on transfers. This will result in a transaction revert when creating a pool. If transfer fees are activated *after* a pool has been created, adding liquidity will no longer be possible. It is important to highlight that the pool can still be settled.
* **Non-rebasable:** The token's balance in a holder's wallet should remain constant. That is, tokens like Ampleforth, Lido's (non-wrapped) staked ETH ([stETH](https://help.lido.fi/en/articles/5231836-what-is-wrapped-steth-wsteth)), or [Aave's aTokens](https://edge.app/blog/company-news/interest-bearing-tokens-in-edge-atokens-ctokens/#:~:text=The%20interest%2Dbearing%20tokens%20have,from%20the%20Compound%20money%20market.), which can alter the holder's balance, should not be used as collateral to prevent rendering a pool undercollateralized or locking any accrued yield/interest. When tokens with a flexible supply are considered as collateral, only tokens with a constant balance mechanism such as [Compound's cToken](https://edge.app/blog/company-news/interest-bearing-tokens-in-edge-atokens-ctokens/#:~:text=The%20interest%2Dbearing%20tokens%20have,from%20the%20Compound%20money%20market.) or the wrapped version of Lido's staked ETH ([wstETH](https://help.lido.fi/en/articles/5231836-what-is-wrapped-steth-wsteth)) should be used. **It's important to highlight that, unlike fee-on-transfer tokens, using rebasable tokens as collateral will NOT cause a transaction revert when creating a pool or adding liquidity.**


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