A cornerstone of Zephyr Protocol's stablecoin mechanism is its over-collateralization, which bolsters the stablecoin's stability. Over-collateralization means that the protocol holds more collateral in reserve than the total value of the stablecoins in circulation. This over-collateralization ensures that there are always enough reserves to cover the circulating supply of the stablecoin. As in other Djed implementations, Zephyr Protocol defines a minimum reserve ratio of 400% which must be met to allow for additional stablecoin minting.

Zephyr Protocol inherits all privacy features of Monero, meaning that transactions of any core asset ($ZEPH, $ZSD or $ZRS) are untraceable and unlinkable, ensuring complete privacy of users. This enables Zephyr Protocol to give rise to the world’s first over-collateralized, private, crypto-backed stablecoin.

Zephyr Protocol is a decentralized protocol, meaning that it is not controlled by any single entity. Zephyr Stable Dollars ($ZSD) are backed by an in-protocol reserve of Zephyr ($ZEPH), not by any centralized authority and not stored in any wallet. This is in stark contrast to traditional fiat-backed stablecoins, which are issued by a centralized authority with opaquely stored collateral which stands against the principles and ideals of cryptocurrency.