Crypto-Collateralized Stablecoins Explained
Volatility hinders crypto’s mainstream use. Stablecoins solve this by anchoring value to assets like the USD. Unlike fiat-backed versions, crypto-collateralized stablecoins use assets like ETH or BTC as reserves, locked in smart contracts.
To ensure stability, these use "over-collateralization"—requiring users to deposit more value than they mint. This buffer, managed by autonomous code rather than central banks, ensures transparency and instant market response, making them vital to DeFi.
