

The stablecoin pie is attractive, and an algorithmic stablecoin appears as a credible solution, fitting into the narrative of decentralized money.
Mechanics of Algorithmic Stablecoins
Algorithmic stablecoins depend on market incentives to maintain a peg to the US dollar. This is done by balancing supply and demand. One example of an algorithmic stablecoin is the $UST. $UST was an $18.6 billion stablecoin that recently crashed.
Conventional stablecoins rely on reserves and collaterals to maintain the 1:1 dollar peg. These reserves and collaterals can either be crypto-backed or fiat-backed. Crypto-backed stablecoins have an inherent risk because it is backed by a volatile asset or a bag of volatile assets. Protocols that use this mechanism will over-collateralize to create a safe buffer.

This leaves algorithmic stablecoins as the only other option to fit into the narrative of decentralized money in a decentralized ecosystem. An algorithmic stablecoin requires the interaction of two crypto assets. The relationship between the stablecoin and the governance token creates an arbitrage opportunity that keeps the coin ‘stable’.
If the stablecoin rises above $1, the stablecoin can be swapped for the governance token, returning a profit to the holder. Conversely, if the stablecoin dips below $1, the stablecoin can be purchased using the governance token, reducing the stablecoin’s supply and raising its price.
Market Assumptions
The problem with algorithmic stablecoin is the assumption that actors in the ecosystem are driven by incentives. The arbitrage system works on a basic assumption under ‘normal market conditions’ that incentives will drive supply and demand. However, the market does not always react rationally, and this results in the failure of the arbitrage system.
Irrational market reactions are often temporary, and the market will eventually correct itself. Terraform Labs realized this risk and created a second layer of protection by having a sizeable reserve of Bitcoin ($BTC) to be deployed in ‘extreme’ market conditions.
Death Spiral
Algorithmic stablecoin can fail, if the assumption is no longer applicable. A death spiral happens when the selling pressure creates a reflexive downward spiral and causes hyperinflation to the governance token. The value of the governance token will take a dip because the market is flooded by newly minted tokens.

When a death spiral happens, the arbitrate system fails, and the reserves will not be able to maintain the dollar peg once depleted.
Decentralized Stablecoin
Stablecoin is the primary source of liquidity in the crypto market. Currently, $USDT and $USDC are the two leading centralized stablecoins in the crypto market. On the other hand, $LUNA and $UST managed to garner market confidence because the ecosystem realized a need for a dependable decentralized stablecoin.
Algorithmic stablecoin has a systemic risk, and in an imperfect market, it is dangerous to rely on assumptions. $UST’s failure did not eliminate the need for a decentralized stablecoin. It merely ousts algorithmic stablecoin as the form of decentralized money for the ecosystem.
Don’t forget to download the BSC News mobile application on iOS and Android to keep up with all the latest news for BNB Chain and crypto!
Follow us on Twitter and Instagram!
For those looking for tools and strategies regarding safety and crypto education, check out the Tutorials, Cryptonomics Explainers, and Trading Tool Kits from BSC News.
Check out the Web3Wire Linktree to keep up with all relevant Web3 and Crypto!
This is a paid press release, BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement article for $1500. Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.
This is a paid press release, BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement article for $2500. Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.
Author
Related News


BTC Price Predictions: Analysts Wade in on the Future of Bitcoin

Top experts have predicted a bullish price movement for BTC in 2024, primarily because of the upcoming halving event.
Bitcoin (BTC), the flagship cryptocurrency, has always been a hot topic for analysts and enthusiasts. Over the past year, many have ventured to predict its price trajectory.
As of January 1 this year, BTC was trading at $16,547, per CoinMarketCap data. This led to speculations that the crypto market might be entering a challenging phase, with many predicting that the bull run might come in 2024, in line with the halving event.
As we approach the end of 2023, let's evaluate some of these predictions and their current status.
PlanB’s Prediction:
PlanB, known for creating the Stock-to-Flow model, made a significant prediction on January 12, 2023. He stated on Twitter that Bitcoin's price of $15.5K in November 2022 would be its lowest. He further mentioned that BTC had surpassed its Short Term Holder (STH) phase and would continue to rise steadily towards the 2024 halving event.
According to PlanB, BTC will trade above $32K during the 2024 halving, expected around April, according to reports. He also predicted that the bull market would begin in 2025, with BTC surpassing the $100K mark.

So far, PlanB's forecast seems accurate. BTC has not dipped below $15.5K since November 2022 and has climbed from $18K in January to $26K currently. PlanB reaffirmed his prediction by quoting his January tweet, saying, "To be clear, I still stand by my January 12 prediction."
To be clear, I still stand by my January 12 prediction:
— PlanB (@100trillionUSD) September 18, 2023
✅ Nov 2022 $15.5k was the bottom
✅ Bitcoin will rise towards 2024 halving. BTC already rose from $18k to $27k since Jan 12.
❓ 2024 halving will be >$32k ($32k-$66k IMO)
❓ 2025 bull market >$100k ($100k-$1m IMO) https://t.co/V74Y8VYCVo pic.twitter.com/VBjsHObMMl
Tim Draper’s Prediction:
Tim Draper, a renowned venture capitalist, made a bold prediction in 2018, stating that BTC would hit $250K by 2022. As we're in 2023, this prediction has yet to materialize.
Oops! I predicted $250k in 2022. My tweet last night was missing a zero. $250k is the number!
— Tim Draper (@TimDraper) April 13, 2018
However, Draper has been right before. In 2014, after buying millions worth of BTC, he predicted its price would reach $10K within three years. This prediction came true in 2017.
In an interview with Hall of Fame, Draper admitted feeling pressured to make another prediction after his first one's success. He attributed the unfulfilled $250K prediction to actions by the U.S. government. Yet, he remains hopeful, stating in December 2022 that BTC would reach $250K before the 2024 halving. He humorously added, "If it’s not $250,000 or higher, then don’t listen to me ever again on that kind of prediction."
Robert Kiyosaki’s Views:
Robert Kiyosaki, a prominent figure in the crypto space, has been vocal about his BTC price predictions. In July, he tweeted that BTC would reach $120K the following year (2024). This came after his earlier prediction of BTC hitting $500K by 2025. Despite BTC's price fluctuations, Kiyosaki has consistently advised people to invest in it and gold and silver.
SOFT LANDiNG? HARD LANDING? Or CRASH LANDING? I say crash landing. I hope I am wrong yet that is what I believe. Corruption is high & leaders corrupt. Buy gokd, silver, Bitcoin. Still best insurance against corruption & incompetence,
— Robert Kiyosaki (@theRealKiyosaki) May 18, 2023
However, his recent tweet with the caption "BYE BYE Bitcoin and US Dollar?" has left many wondering about his current stance on BTC.
BYE BYE Bitcoin & US Dollar? Citibank announced today it is offering bank block chain technology to turn institutional savings into Citibank tokens which can be used for instaneous 24/7 cross border transactions. Bye bye BC & US $?
— Robert Kiyosaki (@theRealKiyosaki) September 26, 2023
Pantera Capital and Chartered Bank
As reported by Crypto News Flash, American hedge fund Pantera Capital and Chartered Bank, a British multinational bank, have similar views about the BTC’s price.
The news outlet disclosed that Pantera Capital predicts $150K for BTC, while Chartered Bank sees BTC reaching the $120K mark in 2024. Both bold predictions have been made due to the highly anticipated halving event in 2024. Historically, Bitcoin's halving is seen as a bullish event in the blockchain industry.
What Next For BTC?
Predicting BTC's price is challenging, given its volatile nature. While some predictions are on track, others have not materialized. As with any investment, it's essential to do thorough research and consult with financial experts before making decisions. Only time will tell which of these predictions, if any, will come to fruition.
This is a paid press release, BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement article for $1500. Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.
This is a paid press release, BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement article for $2500. Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.
Follow us on Twitter and Instagram!
If you need tools and strategies regarding safety and crypto education, be sure to check out the Tutorials, cryptonomics explainers, and Trading Tool Kits from BSC News.
Looking for a job in crypto? Check out the CryptoJobsNow listings!
Author

Try Now!

Sign up Now
Coming Soon

WIN BIG

Coming Soon

Sign Up Now

Earn Now
Coming Soon

Sign Up Now

Play & Mine!
Coming Soon
Editors Choice
Other Currencies
- nameLTBuyLitecoin
Sponsored
Buy Crypto with Fees as low as 0%
Buy Crypto with a bank transfer, credit or debit card, P2P exchange, and more. Not investment advice. All trading risk. Terms apply.
£0£0+0% - nameLTBuyEOS
Sponsored
Buy Crypto with Fees as low as 0%
Buy Crypto with a bank transfer, credit or debit card, P2P exchange, and more. Not investment advice. All trading risk. Terms apply.
£0£0+0% - nameLTBuyMonero
Sponsored
Buy Crypto with Fees as low as 0%
Buy Crypto with a bank transfer, credit or debit card, P2P exchange, and more. Not investment advice. All trading risk. Terms apply.
£0£0+0% - nameLTBuyBitcoin Cash
Sponsored
Buy Crypto with Fees as low as 0%
Buy Crypto with a bank transfer, credit or debit card, P2P exchange, and more. Not investment advice. All trading risk. Terms apply.
£0£0+0%