Overcollateralization is a structure in which the value of assets supporting an obligation exceeds the value of the stablecoins or redemption claims issued against them.
Crypto-collateralized stablecoins often require collateral ratios above 100% because the backing assets can be volatile. The excess collateral provides a buffer against adverse price movements before the position becomes undercollateralized. Regulatory frameworks can also require excess reserve value when backing assets expose holders to risks beyond the reference asset. The required buffer depends on asset volatility, liquidity, liquidation design, and risk limits.
Overcollateralization describes the size of the buffer. The collateral ratio expresses that relationship numerically.
A larger collateral buffer can absorb some asset-price declines before a position or reserve becomes insufficient, although it does not eliminate liquidity or liquidation risk.
A position with $150 of collateral supporting $100 of stablecoins has a 150% collateral ratio and is overcollateralized by $50.