Capital Efficiency is defined as the ratio of a company’s overall expenditure towards review to how much profit it yields. For easier understanding, if any company spends $1 to earn $1 of profit, then the ratio becomes 1:1. A higher ratio determines more capital efficiency ensuring greater profits.
Be it a fiat currency or crypto, one of the biggest setbacks while maintaining good capital efficiency comes to the backups provided by their various assets. This keeps the ratio to a minimum of 1:1. On the contrary, with Stable coins the more capital is pumped into the asset from buying tokens, the more collateral it requires to sustain. This is often termed as Capital Inefficiencies.
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