How Can Dynamic Collateralization Ratios Improve Capital Efficiency?

Dynamic collateralization ratios improve capital efficiency by allowing the system to adjust the required collateral level based on the current market risk and volatility of the underlying asset. During periods of low volatility, the ratio can be lowered (e.g. from 150% to 130%), allowing users to mint more stablecoin with the same amount of collateral.

Conversely, the ratio is raised during high volatility. This allows for a higher stablecoin supply to be generated when the market is calm, optimizing capital use while maintaining security.