Fractional Stablecoins

Fractional stablecoin is a relatively new concept in the domain of stablecoins and cryptocurrency altogether. While a part of the stablecoin is backed by collaterals, the other portion is stabled using algorithms.

There are a plethora of variations in which, fractional stablecoins can model themselves. It can even be partially backed by liquidity while allowing partial redemption. Although the overall idea remains the same, where the protocol can mint more stablecoins than its capability to redeem.

Using a purely algorithmic stablecoin has its own downsides, as these are often subjected to volatility, which counteracts the entire idea of being a stablecoin. Although with a fractional stablecoin, it can maintain its stability by increasing or decreasing the collateral, while maintaining its peg.