The collateralization ratio represents the value of collateral securing a loan or a stablecoin relative to the value of the asset being borrowed or minted. It indicates the extent to which an asset is over-collateralized, providing a safety buffer against price fluctuations. A higher ratio suggests a more secure position for the lender or the stablecoin’s stability.
Context
In decentralized finance (DeFi) and stablecoin protocols, the collateralization ratio is a key metric for assessing risk and stability. Protocols often implement liquidation mechanisms that trigger when this ratio falls below a predetermined threshold, ensuring the solvency of the system. Monitoring and managing collateralization ratios is critical for users participating in lending platforms and for the peg maintenance of algorithmic stablecoins.
The protocol's RWA-backed USD0 stablecoin and its revenue-sharing tokenomics establish a new primitive for capital-efficient, user-owned decentralized banking infrastructure.
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