Volatility has always been crypto’s biggest obstacle to mainstream use. Prices rise and fall dramatically, making it difficult for users and businesses to plan or transact reliably. Stablecoins exist to fix that problem, anchoring digital value to predictable benchmarks like the US dollar.
Crypto-collateralized stablecoins are digital assets backed by other cryptocurrencies held as collateral in smart contracts, designed to maintain a stable value despite market swings.
Let’s take a closer look at how crypto-collateralized stablecoins work, why they require over-collateralization, and why they are increasingly central to decentralized finance.
Key Takeaways
Crypto-collateralized stablecoins use digital assets like ETH or BTC as reserves, locking them in smart contracts to maintain price stability.
Over-collateralization helps ensure resilience against volatility, but makes this stablecoin model capital-intensive.
Transparency and autonomy are key to DeFi, and trust in crypto-collateralized stablecoins depends on open code and verifiable onchain reserves.
