Algorithmic stablecoin
Also called: algo stablecoin · algorithmic token
Definition
A stablecoin that maintains its peg through algorithms rather than asset reserves.
What it means
A token designed to maintain a stable value relative to a reference currency by using algorithmic mechanisms — such as minting, burning, or rebasing supply — instead of holding equivalent reserve assets. Unlike fiat-referenced tokens backed by cash and liquid assets, algorithmic stablecoins depend on protocol logic and market incentives to defend the peg.
Multiple UAE regulators prohibit or restrict algorithmic stablecoins. The ADGM VA guidance explicitly prevents them from use in regulated activity. The DFSA restricts tokens with algorithmic stabilisation mechanisms. These prohibitions reflect the systemic risk demonstrated by the TerraUSD (UST) collapse in May 2022.