Cash and government bonds are the standard forms because they can be valued and sold quickly. Other assets are accepted with a haircut reflecting how much their value might fall before they can be liquidated.
Collateral converts credit risk into liquidity risk. The receiving party is protected, but the pledging party must find eligible assets on demand, and demands arrive precisely when markets are moving against them. Several pension funds discovered this in the 2022 UK gilt episode, where falling gilt prices triggered collateral calls that forced further gilt sales.
Whether collateral can be reused by the receiver, and whether it is held segregated or in an omnibus account, determines what happens if the receiver itself fails. See rehypothecation.
Related: haircut, rehypothecation, variation-margin, credit-support-annex, repurchase-agreement, counterparty-risk