Algorithmic Stablecoin
What is Algorithmic Stablecoin?
Algorithmic stablecoins typically are those that rely on two tokens – one stablecoin and another crypto that backs the stablecoins. Consequently, the algorithm (or smart contract) controls their interaction.
Algorithms control supply and demand to prevent a stablecoin’s price from drifting away from, for example, $1, while it is susceptible to market circumstances. An asset’s price increases when there is an excessive amount of demand for it but not enough supply, and vice versa.
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