How Does a De-Pegged Stablecoin Affect the Collateralization Ratio of a Lending Protocol? ⎊ Path

How Does a De-Pegged Stablecoin Affect the Collateralization Ratio of a Lending Protocol?

Lending protocols rely on the stablecoin as a reliable measure of value for collateral and debt. If a stablecoin used as collateral de-pegs (e.g. drops to $0.50), the actual value of the collateral is halved, even if the protocol still records it at $1.

This immediately and drastically lowers the collateralization ratio for all loans using it. It triggers widespread undercollateralization, leading to a cascade of liquidations to restore the ratio, further destabilizing the market.

How Does the Reserve Ratio Affect the Intrinsic Value of a Collateralized Stablecoin?

How Does a Stablecoin De-Pegging Event Affect the Insurance Fund?

How Does a Liquidation Cascade Amplify Market Volatility?

How Do Margin Calls and Liquidations Cascade across Different Derivatives Platforms during a De-Pegging Event?

Define the Term “Liquidation Cascade.”

What Is “De-Pegging” in the Context of Stablecoins and How Does It Affect LPs?

How Does the Choice between USD-pegged and Crypto-Pegged Collateral Affect Margin Requirements?

How Do Decentralized Lending Protocols Use Oracles for Liquidation of Collateral?

Glossar

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.