By Alicia Maher
Since the introduction of the algorithmic stablecoin to the public consciousness, the new creation has become a buzzword for many developers in the industry, with Terra’s UST being the poster child of what a functional algorithmic stablecoin should be.
Terra’s UST is the model that many would-be developers are looking at to improve their attempt to create a stablecoin for their network.
Cardano Partners with IOST to Launch Crypto-backed Algorithmic Stablecoin
Cardano and IOST disclose their proposed plans to develop an algorithmic stablecoin inspired by the success of Terra UST.
The new development has placed the two parties among several other blockchains, like Terra and Tron, which choose to peg their stablecoins to digital assets instead of fiat reserves.
For emphasis, algorithmic stablecoins are cryptos having their value pegged to a fiat currency and can be backed and stabilized by other digital assets as the case may be. Additionally, algorithmic stablecoins are a new generation of stablecoins that differ in many ways from the collateralized ones like Tether and USD Coin, which are backed by only fiat reserves.
The argument for adopting the new stablecoin model is that it comes with a decentralized structure that curbs the risks associated with a stablecoin with a centralized issuer.
Based on a recent blog post released on Wednesday detailing the ongoing algorithmic stablecoin development on the Cardano network, Djed is currently live on the testnet, which will be stabilized using Cardano’s native token ADA and backed by the Shen, which is the asset’s reserve currency.
The Djed on the Cardano network was launched last September, and it is expected to be used to pay for operations on the Cardano network once scaling has been completed.
On the part of IOST, the blockchain has announced that its algorithmic stablecoin aims to provide solutions to three critical areas the stablecoin system faces. The problems include:
- Strengthening the authenticity of the oracle price
- Handling scarcity to maintain price stability and deal with inflation.
- Developing a short-term price arbitrage system to curb short-term price instability.
The Future of Stablecoin is Algorithmic
Terra is now leading the way in using and adopting algorithmic stablecoin since its decision to back its USD token with a whopping $10 billion worth of BTC. The network has seen its value rise in such a short period that it now occupies the third spot among stablecoins with a large market capitalization.
In addition, Terra UST currently sits among the top 10 as the 10th crypto asset in terms of market capitalization, standing close to its native token LUNA and valued at $18.78 billion.
Tron also recorded a huge gain following the launch of its decentralized USD token as another algorithmic stablecoin announced its name to the world.
That said, regulators are now seeing stablecoins as another threat to the traditional financial sector, and it would not be a surprise to see strict regulations in place against them.