Challenged out of dread (5)
I believe the answer is:
dared
'challenged' is the definition.
(daring is a kind of challenging)
'of dread' is the wordplay.
'of' indicates anagramming the letters (the answer comes from or 'of' the letters).
'dread' is an anagram of 'DARED'.
'out' acts as a link.
(Other definitions for dared that I've seen before include "Had the courage (to do something)" , "Defied, challenged" , "Was brave enough" , "Goaded" , "Risked" .)