💡Overcollateralized Coins — What Are They & Why Are They the Answer?

Overcollateralized stablecoins are backed by other cryptocurrencies. This buffers against price volatility.

An overcollateralized stablecoin is a digital asset that is backed by a certain amount of other assets, typically other cryptocurrencies (such as Bitcoin, Ethereum, etc.).

The ratio of the value of the collateral to the value of the stablecoin is typically greater than 1:1. Therefore, if the value of the backing asset decreases, the value of the stablecoin will remain at one dollar.

The main benefit of overcollateralized stablecoins is that they are much more immune to volatility and price turbulence than uncollateralized stablecoins, making them ideal for everyday use in business or online transactions where price stability is a priority.

In fact, overcollateralized stablecoins are better than other stablecoins because they provide a higher level of security and stability. These stablecoins are backed by a reserve of assets that is greater than the value of the stablecoin in circulation. This means that even if the value of the underlying asset drops, there is still enough collateral to maintain the stability of the stablecoin.

Also, overcollateralized stablecoins provide greater transparency and accountability, as the reserve assets are publicly disclosed and audited. This helps to build trust among users and investors, which is essential for the long-term success of any stablecoin.

Fiat-backed stablecoins face the risk of depegging, which can happen suddenly at any time due to external macroeconomic or political factors. In addition, we learned from an eye-opening event with algorithmic stablecoins that they have a weak underlying structure and are not as reliable as most people thought.

Also, such stablecoins tend to have significant problems during a bear market. On the other hand, over-collateralized stablecoins emerge as one of the winners.

That is why we, at the USDV project, are working on an overcollateralized stablecoin.