Collateralized Stablecoin

Collateralized stablecoin refers to a segment of stablecoin that is entirely backed by the collaterals held within a reserve. Since stablecoins on the blockchain are pegged to a designated price, $1 for the most part, they require backing from fiat currency.

This, in turn, is further swapped to any other cryptocurrency or token. Taking this backing approach is often known as ‘collateral'’. Collateralized tokens on the other hand are completely backed by the assets held within a reserve.

Some of the best examples of collateralized tokens include USDT, DAI, and USDC. This allows the holders to redeem their tokens in the form of US Dollars or any other asset that is viable in the real world.