Algorithmic Stablecoin
A digital asset maintaining value through supply adjustments without direct collateral.
What is Algorithmic Stablecoin?
Algorithmic stablecoins, like Ampleforth (AMPL) or Frax (FRAX), maintain their peg (e.g., to USD) through programmed mechanisms that dynamically adjust token supply based on market demand, rather than relying on collateral like fiat or commodities. For example, Ethena’s USDe uses crypto assets and automated hedging to stabilize value. While innovative, these stablecoins face risks, as seen in the 2022 TerraUSD (UST) collapse, due to challenges in maintaining long-term stability during market volatility.
Related Terms
Treasury Bills (T-Bills)
Short-term U.S. government debt securities with maturities from 4 to 52 weeks, sold at a discount and maturing at face value.
e-CNY
China’s digital yuan, a CBDC issued by the People’s Bank of China.
Flash Loan
A type of uncollateralized loan in decentralized finance (DeFi) that is borrowed and repaid within a single blockchain transaction.
Collateralized Debt Position (CDP)
A smart contract structure where borrowers lock collateral to mint digital assets as a loan.
Buy Walls
Large accumulations of buy orders at a specific price level, forming a barrier against downward price movement.
Bitcoin Core
Bitcoin Core is the primary software client for running a Bitcoin full node, validating transactions, and contributing to the network’s proof-of-work consensus.