How Does the Collateralization Ratio Differ between Algorithmic and Fully Backed Stablecoins?

Fully backed stablecoins (like USDC) aim for a 1:1 ratio, meaning $1 of fiat or equivalent collateral for every stablecoin. Algorithmic stablecoins, by design, are either under-collateralized or not collateralized at all, relying purely on market mechanisms.

This lack of physical backing is the core vulnerability that makes them susceptible to death spirals when confidence fails.