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How Does the Collateralization Mechanism of Stablecoins like DAI Differ from Centralized Ones like USDC?

USDC is fiat-backed and centralized; DAI is crypto-backed, over-collateralized, and decentralized via smart contracts.
Greeks.Live21.11.25

How Does the Collateralization Mechanism of Stablecoins like DAI Differ from Centralized Ones like USDC?

USDC is fiat-backed, meaning each token is redeemable for one US dollar held in a traditional bank account, making it a centralized IOU. DAI is crypto-collateralized, backed by a basket of other cryptocurrencies locked in smart contracts, making it decentralized and over-collateralized.

The stability of DAI relies on market incentives, liquidation mechanisms, and governance adjustments, rather than a direct bank deposit.

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