If the first-generation fiat-collateralized stablecoins mentioned above were an important bridge between fiat and cryptocurrencies, then the emergence of second-generation digital asset-collateralized stablecoins marked the beginning of decentralized stablecoin development.

The model of digital asset-collateralized stablecoins involves locking digital assets as collateral in blockchain smart contracts to issue a cryptocurrency pegged to fiat currency prices. In this model, the collateral itself consists of mainstream cryptocurrencies like BTC and ETH. Because the collateral is inherently decentralized and its execution is guaranteed by smart contracts, it eliminates the trust risks associated with fiat-collateralized models.

The main advantage is that it embodies the decentralized philosophy of blockchain. The collateral is locked in smart contracts, making the process transparent and immutable—it cannot be misappropriated or frozen, and no individual or institution can control the issuance of the stablecoin.

However, there are also drawbacks. Due to the high volatility of the collateral (cryptocurrencies), situations of "insolvency" can easily arise, such as so-called "liquidation" events. Liquidations can lead to further price declines, which in turn trigger more liquidations, creating a cascading effect. For example, after the March 12, 2020, "Black Swan" event, a series of liquidations occurred. To mitigate market risks, MakerDAO later introduced some centralized assets as collateral, such as USDC and wBTC. In the interest of stability, MakerDAO made certain compromises in decentralization.