What Is the Collateralization Ratio for a Fully-Backed Wrapped Asset?
For a fully-backed wrapped asset, the collateralization ratio is 1:1, or 100%. This means that for every wrapped token minted on the destination chain, exactly one unit of the underlying asset is locked in the smart contract or by a custodian on the source chain.
This ratio is essential for maintaining the wrapped token's peg to the original asset's value. Deviations from 100% can indicate trust issues or market arbitrage opportunities.
Glossar
Wrapped Token
Definition ⎊ Wrapped Token describes a synthetic asset created on one blockchain that represents and is pegged 1:1 to an asset native to a different blockchain, facilitating its use within the smart contract ecosystem of the host chain.
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.