How Do Over-Collateralized Stablecoins like MakerDAO's DAI Attempt to Mitigate Psychological "Bank Run" Risks? ▴ Learn

How Do Over-Collateralized Stablecoins like MakerDAO’s DAI Attempt to Mitigate Psychological “Bank Run” Risks?

Over-collateralized stablecoins like DAI mitigate bank run risk by backing each dollar of stablecoin with more than a dollar's worth of volatile assets like Ethereum. This collateral is locked in transparent smart contracts.

This system is designed to withstand price shocks because even if the collateral's value drops, there is a buffer. The transparency of the on-chain collateral allows users to verify the backing at any time, fostering trust and reducing the purely psychological panic that can trigger a run on an uncollateralized or under-collateralized asset.

How Do Central Bank Digital Currencies (CBDCs) Differ from Stablecoins?

Provide an Example of a DeFi Composability Failure (E.g. the 2020 MakerDAO Black Thursday)

What Are the Three Main Types of Stablecoins (Fiat-Backed, Crypto-Backed, Algorithmic)?

How Does the Design of Algorithmic Stablecoins, like Terra/Luna, Create Vulnerabilities to Psychological Contagion?