It depends on the stablecoin mechanism.

Algorithmic stablecoins[1] don't have a one-for-one backing in real world assets so can in theory create new coins "from thin air". The amount they can do this depends on the exact algorithm and the backing assets, and the practicalities of unstable crypto pricing make this difficult in practice.

For example the well-known DAI stablecoin[2] is backed by a mix of crypto assets, but is overcollateralized to avoid problems when one of the backing assets drops in value. The is sort of the opposite of "creating money out of thin air"...

Non-algorithmic stablecoins can do it by being backed by "high quality loan assets", in which case the conventional, non-crypto credit creation mechanism applies.

[1] https://www.kraken.com/learn/algorithmic-stablecoins

[2] https://en.wikipedia.org/wiki/Dai_(cryptocurrency)

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seviu 5 days ago | parent [-]

Dai might have been algorithmically backed but it’s now a flavor of usdc since it’s backed in its majority by usdc.

So far all algorithmically backed stablecoins have failed. Remember Terra Luna.

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immibis 5 days ago | parent [-]

> So far all algorithmically backed stablecoins have failed. Remember Terra Luna.

So that's a sample size of 2, and from those 2, 1 has failed. Not exactly "all"

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seviu 5 days ago | parent [-]

I gave you the most dramatic example. So far no undercollateralized, algorithmically backed $1 stablecoin has sustained a reliable peg at scale over multiple years.

Zero. Nada. There was always somebody somewhere exploiting it.

TerraUSD USN USDN Basic Cash

All failures so far, every time a death spiral.

FRAX started as algorithmic and had to move to over collateralization

Same with DAI

You really can’t call them like that once they become backed by USDC

	▲	immibis 4 days ago \| parent [-]
		Your bailey: > all algorithmically backed stablecoins have failed Your motte: > no undercollateralized, algorithmically backed $1 stablecoin has sustained a reliable peg at scale over multiple years