How Does the Collateralization Method of a Stablecoin Influence Its Risk of Impermanent Loss in a Pool? ▴ Learn

How Does the Collateralization Method of a Stablecoin Influence Its Risk of Impermanent Loss in a Pool?

The collateralization method directly influences the risk of de-pegging, which is the primary cause of impermanent loss in stablecoin pools. Fiat-backed stablecoins (like USDC) rely on external audits and reserves, carrying a centralized risk.

Algorithmic stablecoins carry higher risk because their peg relies on code and market incentives, making them more susceptible to collapse and sudden de-pegging. Higher de-pegging risk means a higher potential for impermanent loss for the LP.

How Does Providing Liquidity in a Stablecoin-Pegged Asset Pool Reduce but Not Eliminate Impermanent Loss?

How Do Algorithmic Stablecoins Differ from Asset-Backed Stablecoins?

What Is the Difference between an Algorithmic Stablecoin and a Fiat-Backed Stablecoin for Treasury Holdings?

What Is the Difference between an Algorithmic Stablecoin and a Collateralized Stablecoin?