How Do Collateralized Stablecoins Differ from Algorithmic Ones in Terms of Risk?

Collateralized stablecoins, such as those backed by fiat or crypto, carry counterparty or liquidation risk, depending on the collateral type. Fiat-backed coins face auditing and reserve management risks.

Crypto-backed coins risk liquidation if the underlying collateral value drops too low. Algorithmic stablecoins, conversely, primarily face "bank run" or death spiral risk due to reliance on a complex, often unproven, economic model and market confidence rather than physical reserves.