Collateralized Stablecoin

Stablecoins are objects that are pegged to the value of one unit of assets such as USD, which are offered to investors who want to be protected from the volatility of other assets in the crypto money world. Collateralized Stablecoin is a stablecoin backed almost entirely by collateral held in reserves, such as USDT, USDC, and DAI.

What Does Collateralized Stablecoin Provide?

The collateral shown to the stablecoins in question may vary. Various value indicators such as bond purchases, commercial papers, and cash can be shown as collateral. This is the basic situation that makes this situation flexible. Collateral held to protect the value of the asset can be used as an investment tool to strengthen the project. The main thing that the collateral provides is that it ensures that the asset cannot go lower than the value it aims to be pegged at. The backed amount of collateral for the asset provides confidence while keeping the price of the asset on the marketplace at a certain level.

In order to prevent price fluctuations that some stablecoins may experience due to the supply-demand relationship, project owners make use of the over-collateralization method. This method ensures that the asset is backed with more assets than its own fiat currency equivalent, and thus, even if the demand decreases, the price decrease is tolerated to a certain extent.

Learn more: The Most Popular 31 Stablecoins of 2022