What Is the Difference between an Algorithmic Stablecoin and a Collateralized Stablecoin?

A collateralized stablecoin maintains its peg by being backed 1:1 with off-chain assets (fiat, bonds) or over-collateralized with on-chain crypto assets. Its intrinsic value is the value of its reserves.

An algorithmic stablecoin maintains its peg through smart contract-driven supply and demand mechanisms (minting/burning) often involving a secondary token, with no direct collateral. Algorithmic stablecoins have higher systemic risk and their intrinsic value is based on the sustainability of the algorithm.