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.
Glossar
Stability
Resilience ⎊ Financial stability within cryptocurrency contexts centers on the capacity of a system, or specific asset, to absorb shocks and maintain core functionality.
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.