Algorithmic stablecoins are tokens that are typically pegged to the value of the US dollar, by means of predefined algorithms and market forces
There are an increasing number of projects aiming to create capital-efficient algorithmic stablecoins, such as FRAX and UST
They are crucial in the reduction of cryptocurrency markets’ reliance on centralized fiat-backed stablecoins
However, they can also experience complete failure in edge cases, where the algorithms designed to maintain the peg becomes its own undoing
Footnotes
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