DAI is not algorithmic at all, but it is controlled by smart contracts. For $1.00 of DAI to be minted, a user has to post somewhere between $1.25-$1.50 of collateral. The act of creating DAI is literally that of taking out a loan. Over time, your debt to the system accrues interest. If your collateral falls under a certain price threshold, the issuer of DAI (MakerDAO), will seize your collateral to close your position. You keep the DAI, and MakerDAO liquidating you keeps the system above water and DAI at the dollar peg.
Algostables are not collateralized at all. They're more akin to ancient gold coins. Think of Luna as a small piece of gold. When UST is created, the Luna is "melted" to form the UST. At any point, the UST can then be "melted down" to get the Luna back out of it. From a certain point of view, UST literally is Luna.
(The naming is supposed to cause consternation from people that dont matter, but since we’re all in one place now, the system design can now be evaluated independently)
Its basically what DAI would have been if DAI launched in 2021 and had choices, compared to 2017
I started reading yesterday on DAI, an algorithmic stablecoin running since 2017. The thing is: a sizeable percentage of DAI is made of... USDC (a non algorithmic stablecoin created by Coinbase/Circle/Centre). They overcollateralize it and so far so good (since five years). They're even saying they're so overcollateralized they should widthstand USDC going to zero (or their USDC wallet being frozen by Coinbase, as Coinbase can do if asked to by the US authorities).