- Sonic Co-founder Andre Cronje announces a new algorithmic stablecoin is being developed with a yield of around 23%.
- Cronje acknowledges the fallout of Terra-Luna in 2022, which has led the industry to be cautious regarding algorithmic stablecoins.
- Sonic has recently been gaining traction in terms of both transaction volume and mindshare.
- Speculation exists as to whether this could lead to a revival of optimism and innovation regarding algorithmic stablecoins.
The DeFi sector is abuzz with the news of Sonic (S) developing an algorithmic stablecoin which could offer an attractive annual percentage rate (APR) of 23%.
While stablecoins are usually pegged to an underlying fiat currency such as the US dollar, with prominent examples being USDT and USDC, an algorithmic stablecoin relies on being governed by an algorithm or code-based mechanism.
Sonic is a layer-1 EVM compatible blockchain, previously known as Fantom. Sonic has recently gained traction with a total value locked of US$850M (AU$1.35B), while remaining front and centre of Crypto Twitter, with prominent KOLs (Key Opinion Leaders) such as Miles Deutscher just last month highlighting the rapid growth of Sonic:
The market cap of stablecoins on Sonic has also surged from US$100M (AU$159M) to US$250M (AU$397M), while bridged TVL doubled from US$600M (AU$954M) to US$1.2B (AU$1.9B).
These metrics are worth paying attention to, despite the price of Sonic falling (which is not uncommon for most altcoins during recent months).
Sonic claims to be the highest-performing EVM blockchain and focuses on the DeFi niche. Sonic boasts a transaction speed of around 400k/s with an average transaction cost of US$0.001.
Related: Trump’s Crypto Council Forecasts US Stablecoin Bill Within Two Months
However, scepticism and caution towards algorithmic stablecoins remains high in the industry following the 2022 collapse of Terra-Luna and its algorithmic stablecoin UST, with Cronje recognising this fact:
The Terra-Luna Crash
Crypto veterans may remember the collapse of Terra-Luna in 2022. Many believe that, in conjunction with the fall of FTX, it caused an unusually brutal bear market. Luna had previously been one of the ‘darlings’ of the 2021 bull market. But with the unpegging of Terra-Luna’s algorithmic stablecoin UST, both Luna and UST went into a freefall towards their demise (though Luna is still traded today at much lower valuations).
This has left investors rightfully cautious towards algorithmic stablecoins, which were once seen as a reasonably safe and reliable way to earn a great yield with your funds. Now more people are questioning where this yield comes from, and how sustainable it is.
Full details regarding how Sonic’s algorithmic stablecoin will work have yet to be released, time will tell how sustainable the venture is, and whether it can usher in a new wave of innovation and stability amongst algorithmic stablecoins.
Related: US Senate Advances Genius Bill as Opponents Push Back Against Stablecoin Regulation
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