Cointelegraph Team
Cointelegraph
With the new announcement that Cardano is on its way to release an algorithmic stablecoin in 2023, various community members expressed concerns, comparing the project to TerraUSD (UST), which caused great losses within the crypto space in 2022.
According to its developers, the stablecoin project Djed will be pegged to the United States dollar and backed by Cardano (ADA $0.318). Apart from this, it will be using another token as its reserve coin. The project highlighted that it will be overcollateralized and will have on-chain proof-of-reserves.
Despite the assurances given by the team, various community members expressed concerns, with some bringing the recently collapsed UST to the conversation.
One community member was seemingly confused as to why another algorithmic stablecoin has come out despite Terra showing that they could go wrong. “I thought we already figured this out, algorithmic stablecoins, not the best option,” they wrote. Meanwhile, another Twitter user mentioned that they would rather keep using Tether (USDT $1.00). According to the community member, algorithmic stablecoins already proved that they are not stable.
Cointelegraph reached out to Djed but did not get a response.
With concerns spurred by the advent of Djed coming out, Cointelegraph asked some of the major stablecoin projects if algorithmic stablecoin projects still have the potential to succeed despite the example shown by TerraUSD.
In a statement, Tether told Cointelegraph that stablecoin projects like Terra had mechanisms designed to achieve stability, but failed in the end. The team explained that:
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.
Meanwhile, USD Coin (USDC $1.00) issuer Circle told Cointelegraph in a statement that algorithmic stablecoins with complex collateralization structures and technological stabilization mechanisms do not have the same utility value as full-reserve, regulated dollar assets. “The collapse of Terra earlier this year underscored that not all stablecoins are created equal,” they said.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.
Recommended Content
Editors’ Picks
Dogwifhat price pumps 5% ahead of possible Coinbase effect
Dogwifhat (WIF) price recorded an uptick on Thursday, going as far as to outperform its peers in the meme coins space. Second only to Bonk Inu (BONK), WIF token’s show of strength was not just influenced by Bitcoin (BTC) price reclaiming above $63,000.
Runes likely to have massive support after BRC-20 and Ordinals frenzy
PUPS, WZRD, and PEPE are gaining liquidity through Bitcoin Ordinals. Creator of Bitcoin’s Ordinals protocol is debuting a new fungible token standard to rival BRC-20, Runes.
Ethereum shows firm support at key level as its correlation with US indices increase
Ethereum's price continued a sideways movement on Thursday as the market still awaits a trigger. Ethereum isn't alone in this horizontal trend; several major index funds have also traded sideways.
Mango Market attacker convicted of fraud and market manipulation
Mango Market attacker Avi Eisenberg was convicted by a federal jury on Thursday for "fraudulently obtaining" funds from the Solana-based decentralized exchange (DEX). He could face up to 20 years in prison for his role in the $110 million attack.
Bitcoin: BTC’s rangebound movement leaves traders confused
Bitcoin (BTC) price has been hovering around the $70,000 psychological level for a few weeks, resulting in a rangebound movement. This development could lead to a massive liquidation on either side before a directional move is established.