“I thought we already figured this out, algorithmic stablecoins aren’t the best option,” a Twitter user wrote.
With the recent announcement that Cardano is on track to launch an algorithmic stablecoin in 2023, several community members expressed concerns, comparing the project to TerraUSD (UST), which caused significant losses in the crypto space in 2022.
The stablecoin project Djed, according to its developers, will be pegged to the US dollar and backed by Cardano ADA tickers down $0.319. Aside from that, it will use another token as a reserve coin. The project stated that it will be overcollateralized and use on-chain proof-of-reserves.
Despite the team’s assurances, several community members expressed their concerns, with some bringing up the recently collapsed UST.
One community member appeared perplexed as to why another algorithmic stablecoin was released despite Terra demonstrating that they could fail. “I thought we figured it out already, algorithmic stablecoins aren’t the best option,” they wrote. Meanwhile, another Twitter user stated that they would prefer to continue using Tether USDT tickers that are down $1.00. According to a community member, algorithmic stablecoins have already proven to be unstable.
Concerned about the release of Djed, Cointelegraph asked some of the major stablecoin projects if algorithmic stablecoin projects still have a chance to succeed, despite the example set by TerraUSD.
Tether told Cointelegraph in a statement that stablecoin projects like Terra had mechanisms in place to achieve stability, but they failed in the end. According to the team:
“Unlike collateralized stablecoins where each coin is fully backed by collateral, algorithmic stablecoins attempt to maintain their value via various market operations that have frequently been broken down dramatically.”