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Algorithmic Stablecoin

A stablecoin that maintains its peg primarily through automated incentives rather than direct asset backing.

An algorithmic stablecoin attempts to maintain its peg primarily through automated supply adjustments and market incentives, rather than being directly backed by held reserves or over-collateralized crypto assets.

This design has historically proven more fragile in practice than collateral-backed designs, with several well-known algorithmic stablecoins having lost their peg dramatically during periods of market stress.

Examples

An algorithmic stablecoin relies on incentive mechanisms rather than direct asset reserves to hold its peg.
Algorithmic stablecoin designs have historically shown a documented tendency toward instability under stress.