Code-defended dollars with thin collateral

1. 1

   Burn governance token

   A user burns a governance token of value `V`, and the protocol mints `V` worth of stablecoin. There is no 1:1 reserve in a custodian — the only "backing" is the governance-token market float, itself partly determined by the stablecoin's success. The reverse trip exists too: redeem the stablecoin for `V` of newly minted governance token. Pharos now tracks this as mint-authority and mechanism risk rather than a FreezeWatch freeze tier.

2. 2

   Mint/burn AMO

   An AMO (Algorithmic Market Operations module) is an autonomous on-chain agent that issues or retires stablecoin to nudge the price back to peg. Above $1 it lets anyone mint at $1 and sell higher; below $1 it lets anyone buy on market and redeem for $1 of governance token. The arbitrage is supposed to close the gap. There are no reserves to draw down — every defense action expands or contracts the governance-token float.

3. 3

   Stablecoin minted (no 1:1 backing)

   Peg stability now depends on governance-token liquidity, market confidence, and arbitrageur willingness. In calm markets the loop closes. In a panic the governance token sells off, the burn-to-mint arbitrage stops being profitable (the freshly minted governance token is worth less than the stablecoin being redeemed), and the peg breaks reflexively. The DEWS supply-velocity signal frequently surfaces this contraction first.

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  USDDUSDD

  TRON DAO Reserve's stablecoin. USDD 2.0 mints against TRX and sTRX vaults with a CDP-style minimum collateral ratio, and operates USDT/USDC Peg Stability Modules on TRON and Ethereum. Reserves also include the Smart Allocator deployment of stablecoin reserves into Aave and JustLend. Structurally a CDP-plus-PSM hybrid today; classified `algorithmic` on Pharos because of the system's depeg history and retained privileged mint authority.

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  FPIFrax Price Index

  Frax's CPI-pegged unit-of-account. Backed 100% by FRAX with AMOs deployed for yield; when AMO yield falls below the prevailing CPI rate, the protocol sells newly minted FPIS via a time-weighted AMM (TWAMM) to top up the treasury. Pegged to U.S. CPI rather than a fixed dollar (`pegCurrency: VAR`, `navToken` flag), so peg deviation is measured against CPI growth rather than $1.

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  HBDHive Backed Dollar

  Hive's algorithmic dollar. The protocol allows HBD-to-HIVE conversion at $1 of HIVE per HBD over a 3.5-day median price window; HIVE-to-HBD conversions require posting collateral. A haircut rule halts new HBD production and reduces the redemption value when the HBD-to-HIVE debt ratio exceeds the protocol's threshold (historically around 30%).

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  ZSDZephyr Stable Dollar

  Djed-inspired stablecoin on a Monero-derived private chain, minted against ZEPH base-coin collateral with a minimum 400% reserve ratio enforced before new ZSD can be issued. No ZEPH is ever minted to defend the ZSD peg, which structurally rules out a UST-style death spiral but leaves ZSD exposed to ZEPH price drawdowns reducing the reserve ratio below the mint threshold.

• NuBits2018-03

  One of the first stablecoins ever created (2014), NuBits held its peg for two years before holders dumped it to chase Bitcoin gains. A pioneering cautionary tale about algorithmic pegs backed by volatile assets.

• Empty Set Dollar2021-01

  Pioneered the "seigniorage shares" model in DeFi. When ESD traded below $1, users could buy coupons (burning ESD) for future redemption at a profit. The mechanism worked during expansion but collapsed when confidence evaporated — coupons expired worthless, and ESD fell to $0.01.

• Dynamic Set Dollar2021-01

  A fork of ESD with faster epoch cycles (2 hours vs 8 hours), designed to stabilize more quickly. Instead, the shorter cycles amplified volatility. DSD spiked to $3 during expansion then collapsed to $0.24 in the same month.

• Basis Cash2021-01

  An anonymous fork of the Basis design, BAC lost its peg within weeks of launch. Later revealed to be co-founded by Do Kwon under a pseudonym — who learned nothing before building the even more catastrophic TerraUSD.

• IRON2021-06

  Dubbed crypto's "first large-scale bank run." IRON was partially collateralized (75% USDC, 25% TITAN). When whales dumped TITAN at its peak, a flawed redemption mechanism sent TITAN from $65 to zero in hours, dragging IRON down with it.

• Cashio Dollar2022-03

  Solana-native algorithmic dollar killed by an infinite-mint exploit: an attacker forged a fake collateral account, minted 2B CASH, and drained ~$48M of USDC and UST from the protocol within hours.

• Neutrino USD2022-04

  Waves-chain algorithmic dollar backed by WAVES via a Terra-style mint/burn loop. Lost its peg after a reflexive crash in WAVES price and never recovered; the loop ran in reverse and never closed back.

• Beanstalk v12022-04

  Credit-based algorithmic stablecoin governed by on-chain seigniorage. Killed by an $182M flash-loan governance attack that passed a malicious proposal in one block and drained the protocol's reserves.

• TerraUSD2022-05

  The canonical algorithmic-stablecoin failure. UST went from $1 to ~$0.10 across May 9–13, 2022; LUNA went from above $80 to fractions of a cent in the same window; ~$40B of combined market value evaporated. The mechanism worked as designed under normal conditions and as critics had predicted under coordinated stress.

• TerraKRW2022-05

  Terra's KRW-pegged sibling, swept away in the same death spiral as UST. Inherited every assumption of the LUNA-burn loop and broke at the same moment.

• DEI2022-05

  Deus Finance's fractional algorithmic dollar, partly backed by USDC and partly by the protocol's DEUS governance token. Collapsed alongside UST in May 2022 when the algorithmic portion of backing lost confidence.

• Fantom USD2022-06

  Fantom-native algorithmic dollar chained to the FTM price. The peg unwound as FTM lost the majority of its market cap during the 2022 bear market; the protocol never restored convertibility.

• SpiceUSD2022-09

  SpiceTrade's algorithmic dollar. Lost its peg and faded out of trading without a single catastrophic event — a slow attrition under thin liquidity rather than a UST-style breakdown.

• USN2022-10

  Near Protocol's algorithmic dollar. A double-mint bug left the protocol roughly $40M short of its claimed backing; the Near Foundation eventually wound USN down rather than recapitalize.

• Acala USD2023-07

  Polkadot's flagship algorithmic dollar, killed in August 2022 by a misconfigured iBTC/aUSD liquidity pool that minted 1.28B aUSD out of thin air. The chain forked to burn most of the minted supply; aUSD never regained credibility and was officially decommissioned in 2023.

• Bean (v2)2024-05

  Beanstalk's relaunched credit-based stablecoin. The second planting failed for the same structural reason as the first: protocol-issued credit cannot defend a $1 peg without an exogenous reserve.

• Pinto2025-10

  A direct Beanstalk fork on Base, launched November 2024. Lost its peg in 2025 after the same supply/credit feedback loop drifted negative and refused to close. Same algorithm, same end.

Full obituaries, peak market caps, and post-mortems in the stablecoin cemetery.

Reflexive collapse / death spiral

Terra/UST went from $1 to roughly $0.10 over four days between May 9 and May 13, 2022; LUNA went from above $80 to fractions of a cent across the same window. Roughly $40 billion of combined market value evaporated. The mechanism worked exactly as designed under normal conditions, and exactly as critics had predicted under coordinated stress. UST is retained as a Pharos shadow asset and replays through `/methodology/stability-index-changelog/` so the May 2022 event remains visible in PSI history.

Mint/burn arbitrage breakdown

The peg only holds when arbitrageurs are confident the governance token can be sold for at least the value being minted. Once that confidence breaks, the under-peg trade does not close, and the protocol cannot fix it from inside the loop. Governance-token dilution as a defense — selling extra supply to top up reserves — works until holders refuse to absorb dilution, typically the moment the defense is most needed.

Recursive use as collateral

UST was deeply embedded across DeFi: Anchor's ~$14B deposit base, the Curve 4pool, lending markets, and synthetic asset protocols all carried direct UST exposure. When UST broke, every protocol holding it was simultaneously impaired. Algorithmic designs that allow themselves to be used as collateral multiply the contagion surface — a property the design family shares with no other archetype on Pharos.

Privileged mint authority retained

Many coins carrying this archetype retain uncapped or admin-controlled mint authority without an explicit holder-balance freeze surface. That is no longer a FreezeWatch tier; the Mint Authority module carries the supply-control review while FreezeWatch stays focused on freezes, blocks, wipes, pauses, and upstream value blocks.

Pure mint/burn (uncollateralized)

The canonical UST model: burn governance token, mint stablecoin, with no segregated collateral. The cleanest version of the design, and the one with the most decisive failure mode. Not a live design at scale today; UST itself survives only as a Pharos shadow asset for PSI replay.

Fractional and conversion-based

FRAX v1 paired partial collateral with an algorithmic remainder before migrating to a fully collateralized model. HBD and ZSD mint against a single protocol-native base coin under conversion rules with safety thresholds (HBD's haircut, ZSD's 400% reserve ratio). These designs limit the death-spiral surface by capping issuance rather than relying purely on arbitrage.

CDP-plus-PSM hybrids retained under the label

USDD 2.0 is structurally a CDP with a Peg Stability Module — close to the `cdp` archetype in mechanism, but classified `algorithmic` because of its depeg history and privileged mint path. FPI is a 100%-collateralized CPI tracker with seigniorage-token dilution as its algorithmic backstop. The bucket is broader than its name suggests.

1. 01

   Active depeg cap on the Safety Score. Algorithmic designs that trade meaningfully below peg are hard-capped at D (≥10% deviation) or F (≥25% deviation).

2. 02

   DEWS supply-velocity signal on `/depeg`. Algorithmic designs frequently trigger this sub-signal first; contraction in circulating supply is the on-chain symptom of the burn-and-redeem loop running against the peg.

3. 03

   Mint Authority review. Most coins under this archetype retain privileged mint authority; sudden mint bursts and admin-key activity are supply-control risk rather than holder-freeze events.

4. 04

   PegScore and the 7-day deviation chart on `/stablecoin/[id]/`. The composite peg score caps lower for chronic deviators, and the chart shows whether a depeg actually closed or just went stale at a discount.

5. 05

   PSI Top Contributors table. Chronic depegs decay through the PSI factor floor (0.25 after roughly 120 days), so a long-running algorithmic depeg is downweighted in the system-wide stability index rather than amplified.

6. 06

   Live Reserve view where available. USDD exposes a 4-hourly collateral mix (TRX, sTRX, Smart Allocator, USDT PSM); FPI exposes its FRAX reserve and FPIS-sale state. Quarterly snapshots are too coarse for this design family.

• • FPI
    Frax Price Index
• • HBD
    Hive Backed Dollar
• • USDR
    Ring USD
• • ZSD
    Zephyr Stable Dollar
  • ↳ZYS
    Zephyr Yield Share
• • LUAUSD
    Lumi Finance LUAUSD