Algorithmic Stablecoin
A stablecoin that maintains its peg through algorithmic mechanisms — such as minting and burning tokens or adjusting supply via incentives — rather than being backed by fiat reserves or overcollateralized crypto. Algorithmic stablecoins are considered higher risk because they can experience 'death spiral' depeg events if confidence collapses.
“TerraUSD (UST) was an algorithmic stablecoin that collapsed in May 2022 when its mint-burn mechanism with LUNA failed, erasing roughly $40 billion in value across both tokens.”
Stablecoin
A cryptocurrency designed to maintain a stable value relative to a reference asset, typically the US dollar. Stablecoins provide a way to hold value and transact in crypto without exposure to price volatility. The three main types are: fiat-backed (USDC, USDT — backed by dollar reserves), crypto-backed (DAI — overcollateralized with crypto), and algorithmic (maintaining peg through algorithmic supply mechanisms).
Depeg
An event where a stablecoin loses its intended peg to the underlying asset (usually $1.00 USD), trading significantly above or below its target value. Depegs can be temporary (caused by market panic or liquidity crunches) or permanent (caused by insolvency or mechanism failure), and they can trigger cascading liquidations across DeFi.
DeFi (Decentralized Finance)
An ecosystem of financial services built on blockchain networks that operate without traditional intermediaries like banks, brokerages, or insurance companies. DeFi uses smart contracts to provide lending, borrowing, trading, insurance, derivatives, and yield generation in a permissionless, transparent, and composable manner. Anyone with a wallet can participate.