How Does the Collateralization Ratio of a Stablecoin Influence Its Vulnerability to a Death Spiral?

The collateralization ratio is the value of the reserves divided by the stablecoin's total market cap. A lower ratio, especially one near 1:1 or less (under-collateralized), makes the stablecoin highly vulnerable to a death spiral.

Over-collateralized stablecoins (ratio > 1) have a larger buffer to absorb collateral price drops, making them much more resilient. An under-collateralized or purely algorithmic coin has no buffer, so a small drop in the peg or its supporting asset can immediately trigger the destabilizing feedback loop.