Algorithmic Stablecoin: Algorithmic stablecoins are a type of digital currency designed to maintain stable value, often pegged to a reserve asset like the U.S. dollar, gold, or foreign currency. Unlike traditional stablecoins, which are typically collateralized with fiat or crypto assets, algorithmic stablecoins use a unique underlying algorithm to regulate their circulating supply. This algorithm automatically issues more coins when the price rises and buys them off the market when the price falls, aiming to achieve price stability and supply balance. These stablecoins provide the benefits of cryptocurrency, such as decentralization and reduced price volatility, making them more suitable for everyday transactions.
Examples of algorithmic stablecoins include Ampleforth (AMPL), Terra USD (UST), USDD on the Tron blockchain, and USDN on Near Protocol. Algorithmic stablecoins represent a decentralized approach, relying solely on code for supply, demand, and price regulation, and do not require regulatory oversight. However, they have faced challenges, such as the notable depegging of Terra USD, highlighting the risks and complexities involved in maintaining stability in the absence of tangible collateral.