What Is the Difference between Over-Collateralized and Under-Collateralized Stablecoins?

Over-collateralized stablecoins hold more than $1 worth of assets for every stablecoin issued, providing a buffer against price volatility of the collateral. Under-collateralized (or fractional reserve) stablecoins hold less than $1, relying on user confidence and a mechanism to maintain the peg.

Purely algorithmic stablecoins are effectively zero-collateralized.