New Cardano algorithmic stablecoin evokes old fears for the community

With the caller announcement that Cardano is connected its mode to merchandise an algorithmic stablecoin successful 2023, assorted assemblage members expressed concerns, comparing the task to Terra USD (UST), which caused large losses wrong the crypto abstraction successful 2022. 

According to its developers, the stablecoin task Djed volition beryllium pegged to the U.S. dollar and backed by Cardano (ADA). Apart from this, it volition beryllium utilizing different token arsenic its reserve coin. The task highlighted that it volition beryllium overcollateralized and volition person on-chain proof-of-reserves.

Despite the assurances fixed by the team, assorted assemblage members expressed concerns, with immoderate bringing the precocious collapsed UST to the conversation.

One assemblage subordinate was seemingly confused arsenic to wherefore different algorithmic stablecoin has travel retired contempt Terra showing that they could spell wrong. “I thought we already figured this out, algorithmic stablecoins, not the champion option,” they wrote. Meanwhile, different Twitter idiosyncratic mentioned that they would alternatively support utilizing Tether (USDT). According to the assemblage member, algorithmic stablecoins already proved that they are not stable.

Cointelegraph reached retired to Djed but did not get a response.

Related: UST aftermath: Is determination immoderate aboriginal for algorithmic stablecoins?

With concerns spurred by the advent of Djed coming out, Cointelegraph asked immoderate of the large stablecoin projects if algorithmic stablecoin projects inactive person the imaginable to win contempt the illustration shown by Terra USD.

In a statement, Tether told Cointelegraph that stablecoin projects similar Terra had mechanisms designed to execute stability, but failed successful the end. The squad explained that:

“Unlike collateralized stablecoins wherever each coin is afloat backed by collateral, algorithmic stablecoins effort to support their worth via assorted marketplace operations that person often been breached down dramatically.”

Meanwhile, USD Coin (USDC) issuer Circle told Cointelegraph successful a connection that algorithmic stablecoins with analyzable collateralization structures and technological stabilization mechanisms bash not person the aforesaid inferior worth arsenic full-reserve, regulated dollar assets. “The illness of Terra earlier this twelvemonth underscored that not each stablecoins are created equal,” they said.