Collateralized Debt Position (CDP)

The user opens a vault and deposits collateral such as ETH, wstETH or wBTC, and against it mints a stablecoin up to a limit set by the asset's collateralization ratio. Parameters are governed per collateral type: the stability fee is the annualized interest on the debt, the liquidation ratio is the collateral-to-debt ratio below which the vault becomes liquidable, alongside a debt ceiling and a liquidation penalty. All are governable parameters that change by vote, so they should be cited as ranges rather than fixed values.

It lets a holder obtain liquidity without selling the asset, keeping exposure, and it is the engine of crypto-backed, decentralized stablecoins. It is the canonical example of overcollateralization, its protection mechanism is liquidation, and it differs from a money market in that a CDP mints new debt rather than lending third-party deposits.

The reference case is Sky, formerly MakerDAO, which mints DAI, the original 2017 stablecoin, and USDS, launched in 2024 with an institutional-integration focus. Its typical collateralization ratios sit roughly in the 145 to 175 percent range depending on the asset, set by governance. Other cases are Liquity, with LUSD and a 110 percent minimum ratio, and Abracadabra, with MIM. In the European Union, a stablecoin of this kind offered to the public falls under the MiCA rules for issuers.