DeFi Pioneer Andre Cronje Reveals Breakthrough in Algorithmic Stablecoin
Today, DeFi pioneer Andre Cronje tweeted that his team has “successfully cracked the algorithmic stablecoin problem,” but due to past market crash experiences, he remains skeptical about whether to launch the technology.
(Background: DeFi Pioneer AC: Not in Crypto for Money, Stagnation of Projects is Exhausting…)
(Further Context: What is the innovative x(3,3) mechanism of Alpha’s Shadow Exchange? Sonic breaks the Uniswap dilemma)
Algorithmic stablecoins once represented an emerging track in the DeFi world, aiming to maintain a peg to fiat currencies through smart contracts and algorithmic mechanisms, avoiding reliance on centralized entities like traditional stablecoins (e.g., USDT, USDC). However, design flaws in these stablecoins were exposed during multiple market shocks, the most notable case being the 2022 collapse of Terra UST, which resulted in market losses of billions of dollars and prompted US regulators to enhance scrutiny in this area. Now, Andre Cronje’s new statements have rekindled market interest in this concept; however, his own hesitation indicates that the shadow of algorithmic stablecoins still looms large.
AC: We Cracked the Algorithmic Stablecoin, but Hold Reservations on Implementation
Andre Cronje (AC), known as the founder of Yearn Finance and hailed as the DeFi pioneer, is currently actively advancing the ecological development of his new public chain, Sonic. This morning, he made a shocking announcement in a tweet:
“I’m pretty sure our team cracked algo stable coins today, but previous cycle gave me so much PTSD not sure if we should implement.”
This statement indicates that his team may have found a new method to tackle the core challenges of algorithmic stablecoins, but due to numerous past failures, he remains uncertain about whether it is worth implementing. What does “cracked” mean? Has a more stable algorithm been found, or has a better collateral mechanism been designed? Currently, AC has not disclosed further technical details.
The Dark History of Algorithmic Stablecoins
The concept of algorithmic stablecoins has been around for a long time, but projects that truly entered the market and gained attention mostly ended in catastrophic collapses. Below are some of the most famous failures:
- Terra UST Collapse (2022)
Mechanism: UST used LUNA as a support mechanism. When the UST price deviated from $1, the system encouraged users to arbitrage between LUNA and UST to maintain stability.
Collapse Reason: After market confidence collapsed, investors rushed to sell UST, leading to an infinite supply of LUNA, ultimately causing both UST’s $18 billion market cap and LUNA’s $40 billion market cap to drop to zero in a very short time, resulting in massive financial losses for investors and a series of regulatory scrutiny.
Further Reading: Do Kwon Extradited to the U.S.! Facing $40 Billion LUNA Fraud Charges
- Iron Finance (2021)
Mechanism: The US dollar stablecoin IRON employed a partially collateralized model, supported in part by USDC and supplemented by the TITAN token.
Collapse Reason: When the price of TITAN fell, a “death spiral” emerged, with unlimited issuance of TITAN, ultimately driving its price close to zero, causing billions in losses, with even NBA Mavericks owner Mark Cuban getting caught up in it.
Further Reading: Iron Finance Collapses Overnight! $2 Billion TVL Vanishes by 90%, Once Backed by NBA Mavericks Owner Mark Cuban
- Basis Cash (2020)
Mechanism: Through an algorithmic stablecoin design, it used three tokens (BAC, BAS, BAB) to interact and attempted to stabilize the BAC price at $1, including issuing bonds (BAB) to adjust supply.
Collapse Reason: When market liquidity dried up and participant confidence was lost, the system failed to maintain the BAC peg to $1, with prices eventually dropping close to zero. Design flaws and excessive reliance on speculative demand exacerbated the collapse. One of the project founders was later confirmed to be Do Kwon, the founder of Terra.
Further Reading: Do Kwon Exposed! Reports Suggest He Was One of the Anonymous Founders of the Failed Algorithmic Stablecoin Basis Cash, Former SEC Lawyer: May Be Under Investigation for UST
These cases demonstrate that the biggest issue with algorithmic stablecoins is that without strong market confidence and stable capital inflows, they can easily enter a “death spiral,” ultimately losing stability.
Conclusion: Is There a Future for Algorithmic Stablecoins?
Although AC’s tweet indicates a technological breakthrough, his reserved attitude also shows that many, including himself, remain highly skeptical about algorithmic stablecoins. With tightening regulations and vigilant investors, whether these stablecoins can regain market favor remains an unresolved question. If AC has indeed found a solution, we may see a “new generation” of algorithmic stablecoins in the future, but whether they can succeed still requires more details to prove it.
