What is an algorithmic stablecoin?

There are several algorithmic stablecoins on the market today, such as Basis Cash (BAC) and Empty Set Dollar (ESD). For many, an algorithmic stablecoin represents how blockchain and crypto should operate, with code controlling the cryptocurrency and zero human input. Until recently, the most popular algorithmic stablecoin was TerraUSD or UST.

What are stablecoins & cryptocurrencies?

For the unversed, stablecoins and cryptocurrencies are able to support the ever-expanding financial markets through transparent smart contracts, without the need for central banks. Yet, not every stablecoin works alike: there are rebase and seigniorage stablecoins.

Are stablecoins collateralized?

While some stablecoins are backed by reserve assets such the dollar or gold, others aren’t collateralized. Uncollateralized stablecoins are also called algorithmic stablecoins: instead of being backed by a reserve asset, their value and supply are controlled through software code rules or algorithms. The code acts as the central bank.

What is a fractional-algorithmic stablecoin?

Frax is an example of a fractional-algorithmic stablecoin, as it is partially backed by USD Coin, a stablecoin that is backed by the U.S dollar. In some cases, algorithmic stablecoins can be very beneficial. They don't require a third party to remain stable, and they can efficiently regulate the number of coins in circulation depending on demand.