What Is an Algorithmic Stablecoin?
An algorithmic stablecoin is designed to achieve price stability as well as balance the circulating supply of an asset through being pegged to a reserve asset such as the U.S. dollar for example, gold or any foreign currency.
In other words, an algorithmic stablecoin actually uses an algorithm underneath, which can issue more coins when its price increases and buy them off the market when the price falls.
These coins grant traders the comfort of receiving many of the benefits of crypto assets such as ETH and BTC, without the risk of too much price volatility.
When we look at algorithmic stablecoin's history, 2013 was the first instance where they were launched on the Bitshare blockchains.
The longest-running algorithmic stablecoin is currently Ampleforth (AMPL).
An algorithmic stablecoin is a representation of what true decentralization looks like, without any regulatory bodies to maintain or watch over the proceedings, as the code is what is responsible for both the supply as well as the demand, alongside the target price.
These foundational benefits offer a scalable solution that is not actually offered by any other set on the market as of now, and the absence of the tangible asset requirement behind algorithmic stablecoin eliminates the possibility of errors from the user's end.
Algorithmic stablecoins fills a need in the crypto ecosystem by bridging the seigniorage back into the coin ecosystem where users can share it.
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