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Algorithmic stablecoin
An algorithmic stablecoin is a token that tries to hold a steady value, usually one dollar, mainly through rules in code that expand or shrink its supply, rather than by holding reserves that cover every coin. Many are backed only partly, or not at all.
What it means for you. Without full backing, the peg rests on people continuing to want the coin. Several have collapsed in so-called death spirals, one losing its peg within hours. If you hold one, the question to check is what, if anything, you could claim if every holder wanted out at once.
Sources: Federal Reserve FEDS Notes: The stable in stablecoins, Federal Reserve FEDS Notes: Runs on Algorithmic Stablecoins · checked 4 October 2026
Fiat-backed stablecoin
A fiat-backed stablecoin is a token meant to stay worth one unit of a government currency, such as one US dollar, because a company holds reserves of cash and similar assets and promises to redeem tokens at that rate. Its value rests on those reserves and on the issuer honoring redemptions.
What it means for you. The promise to redeem usually runs only to the issuer's direct customers, often large institutions, so most holders exit by selling on a market, where the price can slip below one dollar. Check who issues the coin, what its reserves hold, and whether independent reports on them are published.
Sources: Federal Reserve FEDS Notes: The stable in stablecoins, Federal Reserve FEDS Notes: Primary and Secondary Markets for Stablecoins, ethereum.org: Stablecoins · checked 4 October 2026