Cardano’s New Stablecoin Algorithm Project Raises Concerns

Cardano's New Stablecoin Algorithm Project Raises Concerns

Some members of the community raised concerns after the recent announcement that Cardano is set to launch an algorithmic stable in 2023. They especially compared the project to TerraUSD (UST), which led to large losses in the space market crypto in the year 2022.

According to information provided by the developers, the Djed stablecoin project will be backed by the US dollar and supported by Cardano (ADA). In addition, it will use another token as a backup currency. The project team clarified that it will be hyper-collateralized and that they will have a proof of reserve on chain.

Despite the assurances given by the team, some members of the public have expressed concern and some people have expressed concern in memory of The UST recently failed in their comments.

One of the community members made no secret of his concern that another stable of algorithms had emerged even though Terra had already shown that things can go wrong with these types of projects. “I thought we already knew that, algorithmic stablecoins, not the best option,” he wrote. At the same time, another Twitter user expressed his preference to continue using Tether (USDT). According to him, algorithmic stablecoins have already been shown to be inherently unstable.

Cointelegraph has contacted Djed but has yet to hear back at the time of writing.

Also read: Follow-up UST: Is there a future for algorithmic stables?

With concerns raised by the release of Djed, Cointelegraph asked some of the major stablecoin projects whether algorithmic stablecoin projects still have the potential to succeed despite the example set by TerraUSD.

In a statement, Tether told Cointelegraph that stablecoin projects like Terra had designed mechanisms to achieve stability, but ultimately failed. The team explained:

“Unlike collateralized stablecoins where each coin is fully backed by a collateralized base, algorithmic stablecoins attempt to maintain their value through various market operations that are often heavily disrupted. »

For its part, USD Coin (USDC) issuer Circle told Cointelegraph in a statement that algorithmic constables with complex collateral structures and technological stability mechanisms do not have the same utility value as fully-reserve regulated dollar assets. “Terra’s collapse earlier this year showed that not all bases are created stable,” they said.

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