Cardano’s Hoskinson praises algorithmic stablecoins and touts them as the gold standard of the digital age ⋆ ZyCrypto
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Charles Hoskinson believes that algorithmic stablecoins are the way to go and that they are capable of undermining the monopoly of government-issued fiat. In a recent tweet, the Cardano co-founder expressed his support for the stablecoins, calling them “the gold standard of the digital age” and prompting mixed reactions from the crypto community.
“The concept of algorithmic stablecoins is how we nation states get rid of fiat currencies. It’s the gold standard of the digital age,” he tweeted.
Stablecoins are special cryptocurrencies that are linked 1:1 to fiat currencies such as dollars or euros. However, in the past two years, algorithmic stablecoins have emerged, a new form of stablecoin that differs in its collateralization. These stablecoins are backed by an on-chain algorithm and another cryptocurrency that backs them. These include terraUSD(UST), frax(FRAX) and Neutrino usd (USDN).
The debate surrounding algorithmic stablecoins has been around for some time, largely due to the appeal of having a stablecoin that is not issued by a centralized entity or backed by fiat currencies. According to Hoskinson, using a deflationary cryptocurrency like Bitcoin or ADA to collateralize a stablecoin could help achieve this goal, as both have sufficient pools of liquidity to protect stablecoins from falling in value.
However, despite their ability to become the holy grail of next-gen Decentralized Finance (DeFi), the ongoing failures of algorithmic stablecoins are worrying the crypto community. Much of that fear has to do with the collapse of bitcoin-backed stablecoin TerraUSD in May, which drained well over $40 billion in investor funds.
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“With all due respect, I disagree, Terra should be a prime example. After Terra I would hesitate to use an algorithmic concept. As we’ve seen, crap can get out of hand quickly,” one follower responded to Hoskinson’s tweet.
Another wrote: “I think real asset collateral makes more sense than volatile cryptocurrencies like BTC or ADA. If they are refined in the future and also more stable then sure, but liquidations are a big problem.”
DJED, a price-stable algorithmic stablecoin backed by ADA, is already in the works and is expected to go live in January 2023. Users sending ADA to a specific smart contract address will receive DJED in the same dollar value and vice versa. To cushion the collapse of DJED in case ADA suffers a major downside, the smart contract will have a reserve currency SHEN that will keep DJED pegged by guaranteeing a collateral rate of 400-800%.
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