How Does the Collateralization Ratio Relate to the Mint and Burn Process in Asset-Backed Stablecoins?

The collateralization ratio is the value of the collateral divided by the value of the stablecoins in circulation. For minting to occur, the ratio must typically be 1:1 or higher (over-collateralized).

Burning is triggered when stablecoins are redeemed, which reduces the circulating supply and maintains the ratio. A ratio below 1:1 signals under-collateralization and potential instability.