How Does the Risk Profile of an Algorithmic Stablecoin Compare to a Fiat-Backed Stablecoin?

Algorithmic stablecoins carry a much higher systemic risk because their stability relies entirely on complex code, market incentives, and the assumption of rational actor behavior, which can fail spectacularly during extreme market stress ("death spiral"). Fiat-backed stablecoins carry a lower risk of code failure but a higher counterparty risk, depending on the transparency and solvency of the centralized entity holding the fiat reserves.