BlockchainIntermediate#DeFi#Stablecoins
Stablecoin Collateralization
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Definition
The mechanism by which a stablecoin maintains its peg to a reference asset (usually USD) by holding reserves of other assets as backing.
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Concept Diagram
Key Takeaways
1
Collateralization determines whether a stablecoin can maintain its peg under market stress.
2
Fiat-backed stablecoins (USDT, USDC) are most established but require trusting centralized issuers.
3
Crypto-backed stablecoins (DAI) use 150%+ over-collateralization to absorb price volatility.
4
Algorithmic stablecoins without real collateral (like UST) have historically failed catastrophically.
Practical Example
You deposit $200 worth of ETH into a MakerDAO Vault. In return, you can mint up to $133 DAI (66.5% collateralization ratio). If ETH drops and your collateralization falls below 150%, your position gets liquidated with a 13% penalty.
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