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These are similar to fiat backed tokens, but there's a bit more work to have the token target a dollar. These protocols are over-collateralized with a healthy safety factor for protection against price swings. Protocols can create economic incentives to increase or decrease supply. If the collateral (times a safety factor) becomes worth less than the stablecoin, part of the collateral is sold to make up for the debt.
- No trusted custodian
- Emergency Shutdown can guarantee a $1/token buyout
- Not as straightforward to understand
- Approximates $1, not tightly coupled
- DAI (0x6b175474e89094c44da98b954eedeac495271d0f)