The question we aim to answer today is how safe & stable are stablecoins? Let’s dive into some failed examples of algorithmic stablecoins like UST, Basis Cash, and IRON and some new ones like USDD from Tron.
In this part of the series, we will cover algorithmic stablecoins while mainly taking a look at past failed coins like UST that recently caused a crash in the crypto market from Terra by Do Kwan and IRON by Titan Finance which saw a similar demise heavily promoted by Marc Cuban. There are several others we’ll look at but a common theme is these coins depeg and fail.
Here’s a list of all the algorithmic stablecoins shared on CoinmarketCap: https://coinmarketcap.com/view/algorithmic-stablecoin/ - Take a look through the list to see how many are NOT pegged to $1.
First what is an algorithmic stablecoin - https://coinmarketcap.com/alexandria/glossary/algorithmic-stablecoin. CoinMarketCap’s definition is a sound way of putting it – “designed to achieve price stability as well as balance the circulating supply of an asset by being pegged to a reserve asset such as the U.S. dollar, for example, gold or any foreign currency.” The concept is that you don’t have to provide a backing to the coin or collateralize it, but instead it can be balanced by issuing more coins when the price is over $1 or buying them off the market when it’s under $1 to keep the peg.
TLDR: The simple litmus test for a lot of these coins is to ask how they are able to provide yields. If they claim you can “stake” the cryptocurrency for inflation rewards, then you’re likely just really using a lending mechanism similar to what UST did with Anchor protocol. Every coin says they will be different, and seemingly most have not been.
These are all the different kinds of algorithmic stablecoins to give you a better idea of different protocols trying to address algorithmic stablecoins. However, as you can see by looking on Coinmarketcap, out of the handful of coins that are actually pegged, many have depegged in the past or their connected cryptocurrency has lost so much value that the project has no more confidence in it.
I personally hold HBD though I am still in the process of learning as much as I can about it and will soon be doing another interview with Dan from 3Speak to discuss why HBD is different from other stablecoins. I have dramatically pulled back on how much I rely on any stablecoins until I know more about them, hence all this research.
Do you hold any stablecoins? Do you trust algorithmic stablecoins? Were there just a few bad apples or are all algorithmic stablecoins risky? Let me know what you think about this in the comments below and don’t forget to subscribe!
Find the rest in blog form on Hive, Read.Cash, Publish0x, and more blog sites.
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