In our series exploring Cardano’s network parameters, we turn our attention to collateral_percent, the critical safeguard that determines how much users must set aside as insurance when executing smart contract operations. While transaction fees cover the normal costs of blockchain operations, collateral_percent establishes the security deposit required to protect the network from malicious or failing script execution. This means every Plutus smart contract transaction must include collateral covering a specified percentage of the transaction’s fee as protection against potential script failures.
As of this writing, the current value is 150, meaning collateral must cover at least 150% of the transaction fee.
What is it
The collateral_percent parameter establishes the minimum percentage of the transaction fee that must be provided as collateral for Cardano smart contract executions. Unlike simple ada transfers that execute fully deterministically and require no additional security measures, smart contracts can fail during execution for various reasons: invalid logic, violating resource constraints (like max_tx_ex_mem, or max_tx_ex_steps) or malicious attacks attempting to exploit network resources.
This parameter works as an economic deterrent, ensuring that users who submit transactions containing smart contracts have sufficient “skin in the game” to discourage spam attacks while providing compensation to validators who process failed scripts. Every time you interact with a DeFi protocol, mint NFTs, or execute complex validation logic, the collateral requirement multiplies your transaction fee by this percentage to determine the minimum security deposit you must provide alongside your transaction.
How does it work?
collateral_percent doesn’t affect successful transactions - the law is not for the righteous. Collateral is only consumed when smart contract execution fails during phase-2 validation. Cardano’s two-phase validation system separates simple validation checks (phase-1) from complex script execution (phase-2), allowing the network to reject obviously invalid transactions before they consume block space while still processing computationally intensive operations.
This dual-phase approach serves several critical purposes:
Economic protection: Failed smart contracts still consume network resources during validation, so collateral compensates validators for this computational work while deterring users from submitting known-failing transactions.
Spam prevention: By requiring 150% of the fee as collateral, attackers attempting to flood the network with failing scripts lose more ada than they would pay in normal fees, making such attacks economically unviable.
User accountability: The higher collateral percentage encourages developers and users to thoroughly test their smart contracts before deployment, reducing network congestion from poorly written or untested code.
The current 150% setting means that if your transaction fee is 2 ada, you must provide at least 3 ada in collateral UTXOs. If your script executes successfully, this collateral remains untouched and never leaves your wallet. If execution fails, the network consumes exactly the amount needed to cover the failure costs, while any excess collateral is returned through collateral output mechanisms introduced in the Babbage era.
Why you might care
For Decentralized Application developers, collateral_percent directly impacts user experience and adoption barriers. DApps requiring complex smart contract interactions face higher collateral requirements, potentially deterring users who must lock up additional ADA beyond their transaction fees. This constraint encourages optimization strategies:
Testing rigor: Implement comprehensive testing environments to minimize production failures that would consume user collateral unnecessarily. On Cardano, transactions do not have access to the entire data on the blockchain, only the exact chain data you specify as part of building the transaction. This is not true for EVM (Ethereum Virtual Machine) based blockchain transactions. Cardano calls this innovation Deterministic Transaction. This just means everything about the transaction can be determined ahead of submitting on chain and outside data can affect the transaction once submitted. This lets you easily test if the transaction will pass or fail.
User education: This is why some wallets and DApps force you to lock 5 ada in your wallet to interact with their smart contracts. New DApps are able to calculate this automatically and lock the exact amount during the transaction so you don’t have to lock up the 5 ada ahead of time. A simple token swap might show a 0.5 ADA fee but require 0.75 ADA in collateral availability. This isn’t an additional cost under normal circumstances. It is insurance that is unused if the transaction succeeds.
The parameter also influences wallet design and user behavior. The ada used for collateral have to be by itself and not stored next to other tokens. If you are a fan of NFTs and other tokens with 100s or 1000s of these in your wallet, sometimes separating enough ada can cause issues when interacting with complex smart contracts. Usually this just means you have to put some extra your wallet to be able to interact with the DApp.
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