Algorithmic Stablecoin
A stablecoin that targets a peg using algorithmic supply rules rather than full collateralization.
An algorithmic stablecoin maintains a target price (often $1) through rules that expand or contract supply, incentivizing market participants to arbitrage the price back to the peg. Unlike fully collateralized models, these rely on mechanisms such as seigniorage shares, bonding/vesting, or mint-and-burn relationships with a volatile asset.
Algorithmic designs can be fragile during liquidity shocks. Without sufficient demand for the paired asset, redemption spirals can occur, driving both the stablecoin and the backing asset lower (a "death spiral"). High-profile failures include UST (Terra) in 2022.
Related terms
3 linkedExplore connected entries beyond the alphabetical index.
Token
→A digital asset issued on an existing blockchain, often representing value, rights, access, or unique ownership.
DeFi
→DeFi uses smart contracts to provide permissionless financial services such as trading, lending, borrowing, and asset issuance.
Market Cap
→Market cap estimates a cryptocurrency's total circulating value by multiplying price by circulating supply.
All terms and definitions may update as the Cryptionary improves.
