What is Algorithmic Stablecoin?
An algorithmic stablecoin is intended to guarantee price stability by dynamically balancing the currency’s circulating supply based on supply and demand. These currencies are not linked to a reserve asset, such as the US dollar. In other words, it employs an algorithm that can issue more coins when the price rises, then buy and burn them when the price falls.
It is important to remember that in their simplest form, algorithmic stablecoins are fully uncollateralized. They are not backed up by any external assets. Algorithms are explicit instructions or rules that must be followed in order to achieve a result. These computer algorithms are intended to entice market players to trade stablecoins based on supply and demand. This action will manage the circulating supply in order to keep the price of any currency steady around its peg.
Understanding Algorithmic Stablecoin
An algorithmic stablecoin is aimed to provide price stability while also balancing an asset’s circulating supply by being linked to a reserve asset such as the US dollar, gold, or any foreign currency.
In other words, an algorithmic stablecoin employs an algorithm that can issue more coins when the price rises and purchase them off the market when the price falls.
These coins provide traders with the security of enjoying many of the benefits of crypto assets like ETH and BTC without the risk of excessive price volatility.
When we look at the history of algorithmic stablecoins, we can see that they were originally published on the Bitshare blockchains in 2013.
Ampleforth is now the longest-running algorithmic stablecoin (AMPL).
An algorithmic stablecoin is a depiction of total decentralization, with no regulatory agencies to manage or monitor the procedures, as the code is responsible for both supply and demand, as well as the goal price.
Read related articles: