I'm pretty sure it uses the groove clip algorithm.
FYI - I applied Groove Clip to a clip once in a project, and the resulting sound was
awesomely glitch-o-riffic! But whenever I tried to bounce all the tracks to create a two-track mix, the clip would use the high-quality algorithm and lose its wonderfulness. I asked for a solution in these forums, and some helpful person here (maybe Brundlefly or FBB?) said "just select the clip, go into AudioSnap, and change offline rendering to 'groove clip.'" He was right, and I had my bounced and glitchy clip. When it was then bounced down to two tracks, as it had already been 'frozen' into the awesomely glitch-o-riffic sound, I was good to go.
Glad to see I'm not the only one hear who appreciates doing things wrong