Crypto-Collateralized Stablecoin

A crypto-collateralized stablecoin, also called a crypto-backed stablecoin, is issued against digital assets locked in smart contracts rather than money held at a bank. Because collateral such as ether can move sharply in price, these systems usually require overcollateralization: a borrower deposits more value than they mint. Automated liquidations sell collateral when a position falls below the required ratio, and price oracles decide when that happens. The design keeps reserves visible on-chain, but it introduces contract risk, oracle risk, and the possibility that fast market moves leave positions undercollateralized. Governance sets collateral types, ratios, and fees, so the parameters chosen by token holders shape how the peg behaves under stress.