Clear DefinitionsAlgorithmic Stablecoin
1 min read
Pronunciation
[al-guh-rith-mik stay-buhl-koyn]
Analogy
An algorithmic stablecoin is like a central bank’s open market operations automated in code—expanding or contracting supply to stabilize price.
Definition
A stablecoin that maintains its peg through algorithmic adjustments to token supply rather than full collateral backing.
Key Points Intro
Algorithmic stablecoins manage peg via:
Key Points
Rebase mechanism: Automatically increase/decrease balances.
Seigniorage shares: Mint governance tokens when expanding supply.
Oracles: Provide price feeds to trigger supply changes.
No full collateral: Relies on market incentives rather than reserves.
Example
Technical Deep Dive
Contracts read price from decentralized oracles. Rebase function calculates supply delta: Δs = totalSupply × (price − 1)/price. It updates totalSupply and individual balances via a global scaling factor. Governance tokens absorb volatility risk.
Security Warning
Oracle manipulation can trigger wrongful rebases; use robust multi‑source oracles and TWAP safeguards.
Caveat
Rebase can confuse users and break integrations expecting fixed balances.
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