The true test of stablecoins is never during calm days. Whenever the market experiences intense volatility, those projects that usually tout themselves as "rock solid" will reveal their true nature — the deciding factor for survival is not regular performance, but whether a system-wide cascade will be triggered under the worst-case scenario.

USDD 2.0 adopts an over-collateralized CDP approach, which centers around a single core question: when the collateral asset price drops, who will be the first to encounter problems?

The logic behind CDP stablecoins is straightforward — maintain a sufficient buffer cushion while ensuring a rapid risk liquidation process. The buffer comes from over-collateralization, with publicly available data showing that USDD’s collateralization ratio has remained above 120% for years, and even more exaggerated at times. This capacity is used to absorb fluctuations in collateral asset prices. Liquidation involves promptly removing bad debts: when the collateralization ratio falls below a set threshold, the system must sell or dispose of collateral to recover enough funds to cover the USDD debt. Liquidation is not gentle, but it is the last line of defense for solvency.

The key is — liquidation is not an isolated action but part of a complete chain. Oracles are responsible for providing price feeds, determining the value of collateral; thresholds decide when to trigger; liquidation penalties influence willingness to execute; DEX depth affects disposal efficiency. If any link in this chain fails, "controllable risk" immediately turns into "system collapse." Oracle delays, liquidation lags, bad debt accumulation; insufficient liquidation rewards lead to no one executing; shallow liquidity pools cause large slippage during disposal, triggering more chain reactions of liquidation.

The approach of USDD 2.0 is to clearly divide responsibilities: let the PSM handle short-term price deviations, while long-term solvency is entrusted to over-collateralization and liquidation mechanisms. The former ensures the peg, the latter guarantees the system won't become insolvent.