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What Is the Significance of Overcollateralization in DeFi Stablecoins?

It provides a safety buffer against collateral price volatility, maintaining the stablecoin's peg.
Greeks.Live21.11.25

What Is the Significance of Overcollateralization in DeFi Stablecoins?

Overcollateralization means the value of the deposited collateral exceeds the value of the stablecoin debt issued. This is essential for crypto-backed DeFi stablecoins because the underlying crypto collateral is highly volatile.

The excess collateral acts as a safety buffer, absorbing price drops and reducing the risk of the system becoming undercollateralized, which would threaten the stablecoin's peg.

Why Is ‘Over-Collateralization’ Necessary for Crypto-Backed Stablecoins?
How Does the Collateralization Ratio Affect the Stability of a Stablecoin?
Why Is Over-Collateralization Necessary in Many DeFi Protocols?
Why Is the Maintenance Margin Typically Lower than the Initial Margin?

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