Algorithmic Stablecoin

An algorithmic stablecoin tries to hold a steady price using code and market incentives rather than a full reserve of cash or bonds. Typical mechanisms expand and contract supply automatically, or pair the coin with a second, volatile token that arbitrage traders mint and burn to push the price back toward its peg. Designs range from purely algorithmic to partly collateralised hybrids. The category has a poor track record: several algorithmic stablecoins have lost their peg permanently once confidence fell faster than the mechanism could respond, producing a self-reinforcing spiral. This differs from fiat-backed stablecoins, which hold reserves with a custodian, and from crypto-collateralised ones, which are overcollateralised on-chain.