Algorithmic stablecoin

An algorithmic stablecoin is a stablecoin that attempts to hold a target price through code, market incentives, and supply changes rather than simple one-to-one fiat reserves. The system may create, remove, or rebalance tokens to encourage the market price to return to the intended peg. This contrasts with fiat-backed stablecoins in which the issuer claims to hold reserves linked to the token’s value. Algorithmic stablecoins can fail if confidence breaks, liquidity dries up, or the incentive model simply no longer supports the peg.

For example, an algorithmic stablecoin may try to stay near $1 by automatically changing token supply or using a related token to absorb price swings.