Cardano and IOST are ready to launch algorithmic stablecoins – they will solve three big problems

The concept of algorithmic stablecoins has sparked much discussion in the crypto community recently, with Terra’s UST at the forefront of many discussions. The approach appears to have found supporters among crypto architects.

Stablecoins backed by digital assets

Algorithmic stablecoins are cryptocurrencies that are tied to a real commodity or fiat currency but are backed and stabilized by other cryptocurrencies.

This new generation of stablecoins differs from fiat-backed collateralized stablecoins like Tether and USD Coin.

Cardano and IOST have announced that they will follow Terra’s example and offer algorithmic stablecoins backed by digital assets. The two blockchains join Terra and Tron in using no fiat reserves to back their currency.

The reason for this new model is that it offers a more decentralized system that reduces the risks associated with a centralized issuer and operator for a stablecoin.

Algorithmic stablecoins would try to overcome three main problems:

According to a blog post published on Wednesday, Cardano’s algorithmic stablecoin offering Djed is currently active on the testnet.

Meanwhile, IOST announced on Friday that their algorithmic stablecoins would attempt to overcome three main issues with the stablecoin concept.

Challenges discovered included “confirming the accuracy of oracle price feeds”, “controlling scarcity to ensure price stability and managing deflationary costs” and “building a short-term price arbitrage model to reduce short-term price volatility”.

Djed is stabilized by ADA and backed by Shen, which will act as an asset reserve currency, according to the post. Cardano’s Djed was first announced in September last year and is said to be used to pay network fees.

Let’s talk about current market scenarios

Terra’s stablecoin has appreciated in value since it announced its plan to back its Terra USD token with $10 billion worth of bitcoin, ranking it as the third most valuable stablecoin by market size.

Terra USD is now the 10th most valuable cryptocurrency by market cap, behind only its native token LUNA ($18.78 billion).

In contrast, Tron’s native TRX cryptocurrency has seen massive gains despite a market-wide downturn.

Price has surged (USDD) following the unveiling of the network’s Decentralized USD Coin. TRX is up 5% in the last 24 hours and 32.71 percent in the last week.

As long as regulators view stablecoins as a threat to financial stability, it’s no surprise that more stablecoin issuers will take this route to avoid official scrutiny.

LFG recently bought about $3.5 billion in bitcoin to support Terra USD.

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Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own bank and break away from traditional money exchange systems. She is also fascinated with blockchain technology and how it works.

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