What is Over-Collateralization (OC)?
Let's find out Over-Collateralization (OC) meaning, definition in crypto, what is Over-Collateralization (OC), and all other detailed facts.
The provision of collateral valued over the amount that is considered to be enough to compensate for possible losses in the event of a default is referred to as over-collateralization. It is used to effectively navigate danger and entails using an asset as collateral on a loan when the asset's worth surpasses the loan's worth.
For instance, a company owner that needs a loan could offer their equipment or property that is valued at 10% or 20% more than the amount being borrowed. Therefore, over-collateralization might be utilized by companies generating bonds for the same reason.
Over-collateralized stablecoins have a big amount of cryptocurrency tokens kept as a reserve for producing a decreased number of stablecoins. This provides a sort of shield against price fluctuations.
Collateralizing stablecoins, as their demand and usage expand, isn't always efficient because collateral that is unproductive could be put to better use elsewhere. Currently, we are witnessing new developments in which stablecoins with algorithmic managers may produce more coins when the price rises and purchase them off the market when the price falls. This algorithmic manipulation of supply to adjust the price eliminates the need for collateral.
By factoring in propagation delay and <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-block-time/">block time<\/strong><\/a>, blockchain developers can limit the number of orphans. <strong>However, if the decentralized platform has a long propagation delay and a short block time, an orphaned block is likely to emerge<\/strong>.<\/p>","definition":"a valid block that is not a part of the central blockchain and has no parent block.","status":"published","meta_title":"What is Orphaned Block (Orphan)? Definition & Meaning | Crypto Wiki","meta_description":"Orphaned Block (Orphan) meaning: Orphaned Block (Orphan) - a valid block that is not a part of the central blockchain and has no parent block.","meta_keywords":null}" :model="{"id":583,"wikipedia_url":"https:\/\/en.wikipedia.org\/wiki\/Credit_enhancement#Overcollateralization","level":"easy","author_id":1,"created_at":"2023-06-19T06:59:00.000000Z","updated_at":"2023-12-07T20:04:51.000000Z","slug":"what-is-over-collateralization-oc","title":"What is Over-Collateralization (OC)?","section":"O","keyword":"Over-Collateralization (OC)","content":"<p>The provision of <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-collateral/">collateral valued over the amount that is considered to be enough to compensate for possible losses in the event of a default is referred to as over-collateralization. It is used to effectively navigate danger and entails using an asset as collateral on a loan when the <strong>asset's worth surpasses the loan's worth<\/strong>.<\/p>\n<p>For instance, a company owner that needs a loan could offer their equipment or property that is valued at 10% or 20% more than the amount being borrowed. Therefore, over-collateralization might be utilized by companies generating bonds for the same reason.<\/p>\n<p>Over-collateralized stablecoins have a big amount of cryptocurrency <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-token/">tokens kept as a reserve for producing a decreased number of stablecoins. This provides a sort of shield against price fluctuations.<\/p>\n<p>Collateralizing <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-stablecoin/">stablecoins, as their demand and usage expand, isn't always efficient because <strong>collateral that is unproductive could be put to better use elsewhere<\/strong>. Currently, we are witnessing new developments in which stablecoins with algorithmic managers may produce more coins when the price rises and purchase them off the market when the price falls. This algorithmic manipulation of supply to adjust the price eliminates the need for collateral.<\/p>","definition":"Over-collateralization is the supply of collateral valued above the amount deemed enough to compensate for potential losses in the case of a default.","status":"published","meta_title":"What is Over-Collateralization (OC)? Definition & Meaning | Crypto Wiki","meta_description":"Over-Collateralization (OC) meaning: Over-Collateralization (OC) - Over-collateralization is the supply of collateral valued above the amount deemed enough to compensate for potential losses in the case of a default.","meta_keywords":null,"author":{"id":1,"user_id":1,"created_at":"2023-05-03T14:30:55.000000Z","updated_at":"2023-05-11T07:18:20.000000Z","title":"Editor-In-Chief","slug":"aaron-s-editor-in-chief","description":"<p>Having completed a Master’s degree on Economics, Politics & Culture for the East Asia region, Aaron has written scientific papers with a comparative analysis of the differences between US’ Western and Japan’s Collective forms of capitalism, 1945-2020.<\/p>\n<p>With close to a decade of experience in the FinTech industry, Aaron understands all of the biggest issues and struggles that crypto enthusiasts face. He’s a passionate analyst who is concerned with data-driven and fact-based content, as well as that which speaks to both Web3 natives and industry newcomers.<\/p>\n<p>Aaron is the go-to person for everything and anything related to digital currencies. With a huge passion for blockchain & Web3 education, Aaron strives to transform the space as we know it, and make it more approachable to complete beginners.<\/p>\n<p>Aaron has been quoted by multiple established outlets, and is a published author himself. Even during his free time, he enjoys researching the market trends, and looking for the next supernova.<\/p>","user":{"id":1,"first_name":"Aaron","last_name":"S.","email":"aaron@bitdegree.org","email_sanitized":"aaron@bitdegree.org","email_verified_at":"2023-12-01T09:40:20.000000Z","must_verify_email":false,"is_registered_with_wallet":false,"status":"active","country":"LT","last_connected_ip":"88.119.132.125","image_id":2641,"referral_token":"05TMu2NysXOCn525","referred_by":null,"created_at":"2023-05-03T14:30:55.000000Z","updated_at":"2024-01-09T15:22:21.000000Z","full_name":"Aaron S."}}}" :chapter-list="[{"id":1,"title":"Blockchain","slug":"blockchain","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-blockchain.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/blockchain-101.jpg","rating":100,"sections":[{"chapter_id":1,"order":1,"slug":"what-is-blockchain","title":"What is the Blockchain?","status":"published","modified_content":null},{"chapter_id":1,"order":2,"slug":"decentralized-blockchain","title":"Anonymous & Decentralized Blockchains: The Cornerstone of Crypto","status":"published","modified_content":null},{"chapter_id":1,"order":3,"slug":"blockchain-transaction","title":"What is a Blockchain Transaction in Crypto?","status":"published","modified_content":null},{"chapter_id":1,"order":4,"slug":"crypto-fees","title":"The Different Types of Crypto Fees Explained","status":"published","modified_content":null},{"chapter_id":1,"order":5,"slug":"what-is-bridging-in-crypto","title":"The Key Notion Behind the Concept of Bridging in Crypto","status":"published","modified_content":null},{"chapter_id":1,"order":6,"slug":"types-of-blockchains","title":"Different Types of Blockchains: What to Look Out For?","status":"published","modified_content":null}]},{"id":2,"title":"Cryptocurrencies","slug":"cryptocurrencies","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-cryptocurrencies.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/cryptocurrencies-101.jpg","rating":100,"sections":[{"chapter_id":2,"order":1,"slug":"what-is-a-cryptocurrency","title":"What is a Cryptocurrency?","status":"published","modified_content":null},{"chapter_id":2,"order":2,"slug":"how-does-cryptocurrency-work","title":"How Does Cryptocurrency Work?","status":"published","modified_content":null},{"chapter_id":2,"order":3,"slug":"is-cryptocurrency-a-good-investment","title":"Is Cryptocurrency a Good Investment? 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