collateralisation of stablecoin

[sahil-kaushik1]

can anyone help me with this?
like if i bought 100 eth worth of 50 dsc and if prize of eth went down does how the 50 dsc will maintain its price or stability?what gona happen then ? please ellaborate in detail?

[EngrPips]

Hello @sahil-kaushik1, I am unsure if anyone can elaborate more than Patrick had elaborated in the course. I will advise you to rewatch the lesson if things are still not very clear to you.

So my basic understanding is you will deposit weth or any other supported token to the protocol. Whatever you deposit to the protocol will converted to its USD amount, So let's assume you deposited weth worth $100 then you will only be able to mint DSC worth $25 at max, and whenever weth value falls below the acceptable price for your position you would have been liquidated by another user which will take some your deposited weth and whatever is remaining of your weth can be claimed by you whenever you want and also you get to keep the DSC you minted.

[KMean]

@sahil-kaushik1 to add to what @EngrPips said:

When someone liquidates a position, the liquidator typically burns the DSC to restore the balance of the system. as you can see in the liquidate function.

If the collateral (e.g., ETH) backing the DSC falls below the required collateralization ratio, the position becomes eligible for liquidation.

A liquidator can step in to burn DSC (often their own DSC or DSC they acquire on the market) to reduce the circulating supply.
In return, the liquidator receives a portion of the collateral (e.g., ETH) from the under-collateralized position, often at a discount as an incentive.

The DSC that the liquidator uses is removed from circulation (burned). This ensures that the overall system remains solvent and the remaining DSC in circulation is still backed by sufficient collateral.

After liquidation, the remaining collateral (if any) is left for the original user to claim.

Why Burning DSC Is Necessary:
Burning DSC during liquidation ensures that the protocol doesn't become over-leveraged (more DSC circulating than is properly backed by collateral). The system maintains its peg by reducing excess DSC supply, aligning it with the remaining collateral.

Example:
You minted 50 DSC backed by $100 ETH (150% collateralization).
ETH's price drops, and your collateral is worth only $60. Now, your position is under-collateralized.
A liquidator burns 50 DSC to reduce the system's risk and claims some of your ETH as a reward.
Any leftover ETH after liquidation remains yours to claim.

[EngrPips]

Great heads-up