What Level of Collateral Is Required to Mint Synthetic Assets and Why?

A high level of overcollateralization is typically required to mint synthetic assets. This means the value of the locked collateral must be significantly greater than the value of the synthetic assets being minted, often at a ratio of 150% or higher.

This is necessary to absorb price volatility in the collateral. If the value of the collateral drops, the extra buffer ensures the synthetic asset remains fully backed and solvent, preventing it from losing its peg to the underlying asset.

The smart contract system automatically monitors this collateralization ratio.