What Is the Difference between an Algorithmic and a Fiat-Backed Stablecoin?

A fiat-backed stablecoin maintains its peg by holding an equivalent amount of fiat currency (like USD) in reserve for every token issued. An algorithmic stablecoin uses a decentralized, code-based mechanism, often involving a second, volatile cryptocurrency, to manage supply and demand to keep the price stable.

Fiat-backed coins rely on external audits and trust, while algorithmic coins rely on the stability of the code and the economic incentives.