How Does the Reserve Ratio Affect the Intrinsic Value of a Collateralized Stablecoin?

The reserve ratio is the amount of collateral backing the stablecoin divided by the total stablecoin supply. For a collateralized stablecoin, a 1:1 or over-collateralized reserve ratio is essential for maintaining the peg and its intrinsic value.

A reserve ratio below 1:1 signals under-collateralization and a risk of de-pegging, which drastically reduces its intrinsic value and increases the risk premium for its holders. The intrinsic value is directly tied to the confidence in the reserve.