Are algorithmic stablecoins a good investment?

While algorithmic stablecoins sound great in theory, they have a ways to go before they are trusted as stable stores of value. At the time of publication, no algorithmic stablecoin has managed to achieve a consistent stable peg. As such, their use cases tend toward speculative arbitrage traders.

Are algorithmic stablecoins undercollateralized?

Algorithmic stablecoins are typically undercollateralized – they don’t have independent assets in reserves to back the value of their stablecoins. In fact, “undercollateralized stablecoins” and “algorithmic stablecoins” are often used interchangeably. What are algorithmic stablecoins? Algorithm can be an obfuscating word.

What are stablecoins and how do they work?

Stablecoins are digital assets designed to hold a certain value relative to a different asset, most commonly the U.S. dollar. They have become a popular way to hedge against crypto price risk and move funds across exchanges throughout the world.

Can a stablecoin be collateralized?

However, stablecoins can also be collateralized on-chain using decentralized mechanisms, as is the case with DAI. Algorithmic stablecoins are different. Algorithmic stablecoins, in their purest form, are completely uncollateralized. Their value is not backed by any external asset.