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What is Over-Collateralization?
Over-collateralization is a process used in the cryptocurrency industry to provide additional security and reduce risk when issuing digital assets. It involves setting aside a larger amount of collateral than what is required for the issuance of an asset, thus providing extra protection against potential losses due to price changes or market volatility. This process helps ensure that investors are fully protected should any unexpected events occur during the asset’s lifetime. In addition, it helps protect issuers from potential legal risks associated with non-performance on the part of their customers or other related parties.
