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Crypto-backed stablecoin
A crypto-backed stablecoin is a token meant to hold a steady value, often one dollar, that is created when someone locks cryptocurrency worth more than the stablecoins they mint in a smart contract. The extra collateral is a cushion against the collateral's price falling.
What it means for you. Minting one is a loan: if your collateral's value falls below the required ratio, the protocol can liquidate it, and you keep the stablecoins but lose the collateral. If you only hold the coin, its peg depends on the collateral's value and on liquidations working during a crash.
Sources: Federal Reserve FEDS Notes: The stable in stablecoins, Federal Reserve FEDS Notes: Primary and Secondary Markets for Stablecoins · checked 4 October 2026
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