A stablecoin that holds its peg via supply-adjustment algorithms rather than 1:1 collateral.
Algorithmic stablecoins maintain the peg through code — expanding supply when price exceeds target, contracting supply when it falls below. They are typically only partially collateralized, or use a paired volatility-absorbing token. The category has the worst historical track record: Terra's UST collapsed in May 2022, wiping out ~$60B. Modern algorithmic designs (FRAX v3, USDD) hold significant hard collateral alongside the algorithmic component, blurring the line with hybrid designs.