By Michael Scott
The announcement by Cardano of rolling out algorithmic stablecoins has evoked concerns in the crypto community members. The statement confirming Cardano plans to release its algorithmic stablecoin next year has elicited fears of investment losses.
In particular, various community members expressed uncertainty over the project’s viability in the wake of the TerraUSD (UST) collapse. Lamenting the considerable digital wealth trapped in failed cryptos in 2022, the community has confessed cold feet in the project.
The developers tasked with the project have admitted pegging the stablecoin Djed to the US dollar, supported by Cardano (ADA). The developers have indicated the stablecoin will have a separate token serving as the reserve coin. Besides the inclusion of on-chain proof-of-reserves, Cardano confessed to over-collateralizing the stablecoin.
Algorithmic Stablecoin’s Viability Questioned
The assurances conveyed by Cardano have failed to quell concerns portrayed by the recent conversation of community members likening the project’s future to the collapsed UST. A common theme in the conversation is criticism of the algorithmic stablecoin viability, given that Terra demonstrated its vulnerability.
A concerned crypto member expressed displeasure to onboard the new project by indicating a preference for Tether (USDT). The concerned user emphasized that the stability of algorithmic stablecoins is questionable.
Cardano’s announcement has prompted crypto community members to seek an audience with successful stablecoin projects. In particular, they have questioned the potential of algorithmic stablecoin success in the wake of TerraUSD.
Pessimism in Algorithmic Stablecoins Acknowledged
Tether’s response to the uncertainty surrounding Cardano’s project illustrated that Terra’s mechanisms featured distinct designs to accomplish stability. Nevertheless, TerraUSD failed the time test.
Tether’s team acknowledged that algorithmic stablecoins differed from the collateralized stablecoins since each coin has matching collateral support. Contrastingly, the team indicated that stablecoins derive value through market operations that often break down eventually.
Circle’s team has waded into the algorithmic stablecoin debacle. The team behind the USD Coin (USDC) indicated that algorithmic stablecoins lack the utility value users derive in the full-reserve and regulated crypto dollar assets.
The Circle representative indicated that complex collateralization infrastructure could not sustain the utility value in algorithmic stablecoins. In addition, technological stabilization mechanisms become obsolete with time, making a repeat of Terra collapse inevitable.