What Is the Risk of Using a Stablecoin without a PoR Oracle?
A stablecoin without a Proof-of-Reserve (PoR) oracle carries the risk of being unbacked or fractional. The issuer's claim that the token is backed 1:1 by a reserve asset (like USD) must be taken on faith, creating counterparty risk.
If the reserve is insufficient, the stablecoin could 'de-peg' and lose its value, leading to a loss of user funds and systemic instability across DeFi protocols that rely on it as collateral.
Glossar
User Funds
Custody ⎊ This defines the state of holding and controlling digital assets, which is a primary concern for traders utilizing derivatives platforms.
Oracle
Mechanism ⎊ An Oracle is a service that securely feeds verified external information, such as the spot price of Bitcoin, into a smart contract to trigger actions or calculate derivative payoffs, acting as a crucial data bridge.
PoR
Mechanism ⎊ Proof-of-Reserve systems represent a cryptographic verification method designed to demonstrate that a centralized entity, typically a cryptocurrency exchange or custodian, holds sufficient reserves to cover its liabilities to users.
Por Oracle
Mechanism ⎊ A Price Oracle, often abbreviated as "Por Oracle" in some contexts, functions as a critical mechanism for feeding real-world asset prices into blockchain-based smart contracts.
DeFi Protocols
Function ⎊ DeFi protocols, or Decentralized Finance protocols, are autonomous applications built on blockchain technology that replicate traditional financial services without intermediaries.
Reserve Status
Valuation ⎊ The current status of a cryptocurrency reserve is fundamentally determined by the real-time valuation of its underlying assets against its liabilities.