BTC, USDT, and ETH are accepted as collateral!
95% of BTC and USDT balances and 90% of ETH Balances within your FTX balance count towards your total collateral (marked to the latest index price). Should your USD balance drop below 0, a fraction of your BTC and USDT will be automatically converted to USD to cover (as illustrated in the example below). Note that realized PNL from futures, both negative and positive, is paid out in USD.
For instance, suppose you realize some negative PNL on a futures position, and your USD balance drops to -10. If you have BTC, USDT, or ETH in your wallet, FTX will convert whichever of your USD and BTC balance is lower into (10 USD) * 110% = 11 USD. Only 10 of the 11 generated USD will be used to cover, and the remaining 1 USD will remain as buffer in case your USD balance dips below 0 again.
You will get a warning about low USD balance if your USD balance is less than $1000 and your USD balance * 1.5 is less than your total collateral.