Over-Collateralized Stablecoins: Collateral, Pegs, Governance, and Risks
Summary
This primer introduces over-collateralized stablecoins and compares their design with fiat-backed and algorithmic tokens. It outlines how collateralized tokens can be minted against crypto assets, how excess collateral and incentives can support a fiat peg, and how governance, reserve transparency, regulation, blacklist controls, and stabilization mechanisms affect users. It discusses DAI and crvUSD in detail, including MakerDAO vaults and savings incentives, Curve DAO collateral approvals, and liquidation processes.
The article presents market-share and holder trends through August 2023 and describes episodes of depegging and stress, including a crvUSD deviation after a protocol vulnerability. These examples illustrate that collateralization does not eliminate market, liquidity, governance, or smart-contract risks. The report is only a partial survey: it names other stablecoins but directs readers to a larger report for their coverage. Its market observations are dated, and the cited charts are not reproduced as numerical analysis in the text.
Key ideas
- Over-collateralized stablecoins issue tokens against collateral worth more than the tokens borrowed, with liquidation rules helping manage shortfalls.
- DAI uses MakerDAO vaults and governance, while crvUSD relies on Curve infrastructure and collateral liquidation.
- Users should assess governance authority, reserve transparency, regulatory exposure, blacklist controls, and peg mechanisms.
- Examples of depegs and protocol stress show that excess collateral does not remove smart-contract or liquidity risk.
- The market-share and adoption observations refer to data available through August 2023.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.