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
Crypto
A shorthand term for cryptocurrency - digital currencies secured by cryptography and operating on decentralized networks.
Decentralization (Prediction Market)
The distribution of control and data across multiple nodes in a prediction market, reducing reliance on a single authority.
Thick Market/Thin Market
A thick market has many participants trading high volumes, ensuring robust information aggregation; a thin market has few participants and low volumes, risking inaccurate predictions.
Skin in the Game (Prediction Market)
The financial or reputational stake participants commit to in a prediction market, aligning their actions with true beliefs.
STRF
Strategy's 10.00% Series A Perpetual Strife Preferred Stock, a non-convertible preferred equity providing high fixed dividends without equity upside.
Secured Overnight Financing Rate (SOFR)
A benchmark rate measuring the cost of borrowing cash overnight collateralized by U.S. Treasury securities in the repurchase agreement market.