The Sonic blockchain is advancing the development of its yield-generating, algorithmic stablecoin, even amidst concerns about a potential failure akin to the Terra-Luna disaster that triggered a prolonged downturn in the crypto market.
Algorithmic stablecoins utilize programmed mechanisms to maintain their price stability, unlike fiat stablecoins which are directly linked to the value of a traditional currency.
According to a key figure behind Sonic, they are working on an algorithmic stablecoin that could offer an annual percentage rate (APR) of up to 23%.
In a recent social media update, it was stated:
“Proof of concept looks promising. Yielding more than 200% APR at $10 million total value locked, about 23.5% APR at $100 million, and stabilizing around 4.9% at over $1 billion. We are set to scale up and assemble a team for a complete launch.”
This announcement came shortly after this individual shared having experienced post-traumatic stress disorder (PTSD) regarding algorithmic stablecoins due to prior market cycles, stating:
“I’m pretty sure we figured out algo stablecoins today, but my past experiences have caused so much PTSD that I’m uncertain about implementation.”
In May 2022, the $40 billion Terra ecosystem collapsed, wiping out tens of billions of dollars in mere days. Terra’s algorithmic stablecoin, TerraUSD (UST), had been offering over 20% annual percentage yield (APY) on its lending platform.
As UST started to lose its dollar peg, dropping to roughly $0.30, one of its co-founders announced a recovery plan on social media. Simultaneously, the price of the sibling token LUNA plummeted more than 98%, hitting $0.84 from a trading price over $120 just weeks earlier.
Sonic claims to be the fastest Ethereum Virtual Machine (EVM) chain, featuring a “true” finality of 720 milliseconds—this indicates that a transaction is irreversible once included in a block on its blockchain.
Since its testnet achieved this impressively quick finality on September 8, 2024, Sonic has attracted significant attention within the crypto realm.
### Investors Continue to Trade LUNA Token Years After Its Decline
The Terra (LUNA) token has fallen over 98% from its peak of 19.54, recorded nearly three years ago on May 28, 2022.
Despite this drastic decline, the token has recently witnessed over $21 million in trading volume within 24 hours, suggesting that “people are still buying it even though it’s essentially defunct,” as pointed out by a well-known technical analyst.
The collapse of the issuer of the algorithmic stablecoin sent shockwaves through the crypto investor community and drew the attention of lawmakers.
To promote greater stability, the European Union’s new regulatory framework will ban the issuance of algorithmic stablecoins in an effort to prevent another crisis like that of the Terra ecosystem.