How Does the Market Capitalization of the Governance Token Relate to the Stablecoin's Security? ⎊ Path

How Does the Market Capitalization of the Governance Token Relate to the Stablecoin’s Security?

The market capitalization of the governance token represents the protocol's ability to absorb losses and maintain the peg. A larger market cap means the protocol has a bigger buffer to issue tokens and incentivize arbitrage during stress.

If the stablecoin's market cap vastly exceeds the governance token's, the system is highly vulnerable to a death spiral.

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Glossar

Capitalization

Equity ⎊ In cryptocurrency and derivatives, capitalization transcends the conventional financial definition, representing the aggregate market value of circulating tokens or underlying assets.

Governance Token

Asset ⎊ A Governance Token grants its holders the right to propose and vote on changes to a decentralized protocol's operational parameters, often including modifications to risk models or fee structures.