Sonic Labs has decided to abandon its plans for a US dollar-pegged algorithmic stablecoin and will instead focus on creating a stablecoin based on the United Arab Emirates dirham.
On March 22, co-founder Andre Cronje announced that the company was developing a US dollar-pegged algorithmic stablecoin with the potential for an annual percentage rate (APR) as high as 23%. However, just one week later, the company changed its direction.
“We will not be launching a USD-based algorithmic stablecoin,” Cronje stated in a March 28 post. “Completely separate from that, we are going to introduce a mathematically bound numerical dirham that is settled and denominated in USD, which is certainly not a USD-based algorithmic stablecoin.”
This strategic pivot follows the announcement that the UAE will debut its digital dirham central bank digital currency (CBDC) in the fourth quarter of 2025.
The governor of the Central Bank of the UAE, Khaled Mohamed Balama, remarked that the blockchain-based dirham could strengthen financial stability and assist in the fight against financial crime. The new digital currency will be utilized alongside the physical currency across all payment methods, as reported.
The change in Sonic Labs’ approach comes in the wake of significant criticism over its previous plans to introduce an algorithmic stablecoin—a model that has generated concerns in the crypto sector since the downfall of the Terra ecosystem in 2022.
Cronje has openly shared that he struggled with post-traumatic stress disorder (PTSD) related to algorithmic stablecoins due to past experiences, saying, “I’m pretty sure our team cracked algo stable coins today, but previous cycles gave me so much PTSD that I’m unsure whether we should implement it.”
In May 2022, the $40 billion Terra ecosystem fell apart, wiping out tens of billions of dollars in mere days. Its algorithmic stablecoin, TerraUSD (UST), had previously offered returns exceeding 20% annual percentage yield (APY) on the Anchor Protocol before it collapsed.
As UST lost its peg to the dollar and plummeted to around $0.30, Terraform Labs co-founder Do Kwon took to social media to announce his recovery plan. Simultaneously, the value of the sister token LUNA—once among the top ten crypto projects by market cap—plummeted over 98% to $0.84, down from over $120 in early April 2022.
The debacle caused significant distress among both crypto investors and regulators.
To mitigate systemic risk, the European Union’s Markets in Crypto-Assets Regulation (MiCA) bill is set to ban algorithmic stablecoins to prevent a repetition of the Terra incident.
In the meantime, stablecoins are increasingly being used for smaller, routine transactions rather than large transfers, as noted by David Pakman, managing partner at CoinFund. “We’ve observed a noticeable reduction in the size of each stablecoin transaction, indicating that they are being utilized more for payments rather than for significant transfers,” Pakman commented during a live show.