Glossary
Algorithmic Stablecoin
A stablecoin that maintains its peg via supply expansion / contraction rules — no fiat or crypto collateral held 1:1. Historically fragile under stress.
Algorithmic stablecoins try to hold a peg without direct collateral. The classic mechanism: a paired "share" token mints new stablecoins below peg and burns them above peg, with arbitrage pushing the price back.
In practice the model is reflexive: when confidence in the share token cracks, the mechanism unwinds in a death spiral. The most catastrophic example was Terra/UST in May 2022, which wiped out roughly USD 40 billion in days. Most surviving "algorithmic" stablecoins are now partially collateralized hybrids.