How Does the Collateralization Ratio Affect the Stability and Spread of a Collateralized Stablecoin?

The collateralization ratio is the value of the underlying assets securing the stablecoin divided by the stablecoin's value. A higher ratio (over-collateralized) provides a larger buffer against price volatility of the collateral, increasing confidence in the peg's stability.

Higher stability leads to greater liquidity and a tighter bid-offer spread.