What Is the Function of a “Collateral Ratio” in a Synthetic Asset Protocol?

The collateral ratio in a synthetic asset protocol is the minimum value of the underlying collateral that must be locked to back the value of the synthetic asset. It is typically set above 100% (e.g.

150%) to ensure the synthetic asset remains solvent even if the collateral's value drops. This over-collateralization acts as a buffer against volatility.

If the ratio falls below the minimum threshold, the collateral is automatically liquidated to maintain the peg and protect the system's integrity.