Compare the Capital Efficiency of Fiat-Backed Vs. Over-Collateralized Stablecoins.
Fiat-backed stablecoins are considered highly capital efficient because they operate on a near 1:1 collateralization ratio (e.g. $1 fiat for 1 stablecoin).
This means almost all deposited capital is used to back the stablecoin supply. Over-collateralized stablecoins are significantly less capital efficient, as they require a substantial excess buffer (e.g.
$150 crypto for $100 stablecoin) to account for collateral volatility. This trade-off reflects the difference between a centralized, low-volatility backing and a decentralized, high-volatility backing.
Glossar
Fiat-Backed
Collateral ⎊ The concept of fiat-backed cryptocurrency or derivatives fundamentally rests on the provision of collateral, typically held by a custodian or escrow agent, to represent the underlying value.
Collateralization Ratio
MarginRequirement ⎊ The Collateralization Ratio quantifies the amount of posted margin relative to the notional value or exposure of a leveraged position, serving as the primary metric for assessing margin adequacy.
Capital Efficiency
Leverage ⎊ Capital efficiency, within cryptocurrency and derivatives, fundamentally represents the maximization of risk-adjusted returns relative to capital at risk, a metric increasingly vital given regulatory constraints and market volatility.
Fiat
Foundation ⎊ Fiat, within the context of cryptocurrency and derivatives, represents a government-issued currency legally established as a medium of exchange; its value is derived from government regulation or law, not intrinsic worth, and serves as the primary on and off-ramp for capital within digital asset ecosystems.