Algorithmic Stablecoin
A stablecoin that uses software rules and market incentives to try to keep its price near a target, usually without full collateral backing.
An algorithmic stablecoin is a crypto token designed to hold a steady value, most often around 1 US dollar, using automated rules rather than relying mainly on cash, bonds, or other assets held in reserve. These rules may expand or reduce token supply, adjust rewards, or use a second token to absorb price swings. The goal is to encourage traders and users to buy or sell in ways that push the stablecoin back toward its target price.
This matters because stablecoins are widely used for trading, payments, lending, and moving value between crypto platforms without converting to traditional currency. Algorithmic designs aim to be more decentralized and capital-efficient than fully backed stablecoins, but they can be fragile if confidence drops or incentives stop working. For example, a collateral-backed stablecoin is like a tokenized claim on reserves, while an algorithmic stablecoin is closer to a system that tries to balance supply and demand automatically. If the mechanism fails, the token can lose its peg quickly.
Other terms in Stablecoins
Collateralized Stablecoin
A stablecoin backed by assets held as collateral to help keep its price close to a target value, usually a fiat currency like the US dollar.
DAI
A crypto-backed stablecoin designed to track the value of the U.S. dollar without relying solely on bank deposits.
Depeg
A depeg happens when a stablecoin or pegged crypto asset trades noticeably away from the value it is meant to track.
Peg
A peg is a target value that a stablecoin or crypto asset is designed to maintain relative to another asset, such as the US dollar.