Are algorithmic stablecoins an innovation or a scam?

Written by: 0x26

Due to the wealth effect caused by the increase, algorithmic stablecoins have recently occupied major industry media and The headline on the front page of the market software search bar.

Algorithmic stablecoins Base Protocol and Basis Cash both rank in the top ten of Uniswap's daily trading volume, while the old algorithmic stablecoin AMPL ranks 12th in terms of trading volume, and Base Protocol is also ranked first in the popularity of the data aggregation platform CoinGecko .

Not only in terms of transaction volume, search volume, and media attention, the community also has a strong discussion on algorithmic stablecoins. Some people think that the algorithmic stablecoin is a revolutionary innovation, which will be used as a smart contract-based "Federal Reserve" to rationally manage market capital circulation. 's scam.

Pan Chao, head of MakerDAO’s China region, once published in 2018 and 2019 entitled "Basecoin: A Bigger Than Bitconnect Dangerous Scam" and ""Algorithmic Stablecoin" is a False Proposition", the interesting thing is that the protagonists in the article are the popular algorithmic stablecoin Basic (the predecessor of Basis Cash) and AMPL respectively.

This article organizes the different views of the community as follows.

Twitter user Andrew Kang said that similar to the concept of oracles in 2020, algorithmic stablecoins There may be a big explosion in the future. The number of fiat-anchored stablecoins has grown surprisingly recently, and the growth rate has not slowed down significantly. However, due to the nature of the stablecoin, if users do not hold the company that issued the stablecoin, they will not be able to obtain dividends from the growth of the stablecoin. Even MakerDAO will not be able to obtain the benefits it deserves during the crazy issuance of DAI. At the same time, the anchored fiat currency stable currency does not have the characteristics of decentralization, and there is a possibility of being forcibly processed by a centralized organization.

If users hold algorithmic stablecoins, as the market value of stablecoins increases, they can enjoy this part of the dividend . Algorithmic stablecoins need to be continuously expanded to meet the real demand. At this time, there is a paradox. There is no demand and the supply cannot be expanded. However, if the supply is insufficient, algorithmic stablecoins are difficult to stabilize, and users will not generate demand. To solve this problem, it needs to evolve into a "Ponzi scheme" to expand the market size of the algorithmic stable currency by attracting speculators who follow the interest. Similar to the second pool concept of Farming, algorithmic stablecoins also need high returns in the early stages to attract funds to expand their scale. (Rhythm note, Andrew Kang is an ESD stakeholder.)

Crypto Insights indicates that the algorithm is stable Coins are not really stablecoins , but an algorithmically tuned stability coin.

Some users also said that the market will provide algorithmic stablecoins among anchored stablecoins and partially mortgaged stablecoins a market. Algorithmic stablecoins will always exist as an integral part of a healthy market.

There are also many users who are puzzled by the popularity of algorithmic stablecoins, and Risk is indicated.

First of all, the author believes that some fields cannot be absolutely marketized. It is difficult for the "algorithmic stablecoin" to be truly stable, so as to satisfy its most important and only function, that is, to be stable to meet the role of a trading medium. Even if the algorithmic stable currency achieves a large enough scale, there is no evidence that it can maintain sufficient stability. If the market value expands to the so-called "sufficient amount" and fails to achieve the ideal stable currency state, it cannot be used as a trading medium. practicability, then the algorithmic stable currency may become a real "Ponzi scheme".

Tyler Reynolds from Google says he doesn’t understand the value of an algorithmic stablecoin like Basis What is the role. Because Uniswap can satisfy the oracle using only DAI, and if the price of DAI falls, there is a correlation that the price of BAC also falls.

Hasu, a researcher at the options trading platform Deribit, commented under a post that algorithmic stablecoins are about to explode, and these algorithmic stablecoins will only be the losers of this "war".

As Pan Chao mentioned in "Algorithmic Stablecoin is a False Proposition", relying solely on an algorithm that runs automatically is like facing a robot with basic chat functions, which can be used for daily conversations, but in In the face of more complex requirements and unexpected situations, it is still far from a complete system.

The vast majority of users do not understand the working principle of algorithmic stablecoins, and the popularity of the market is mainly due to the wealth effect. Holding algorithmic stablecoins has the risk of losing money, and algorithmic stablecoins are not necessarily “stable”. Users need to study carefully and not be coerced by the market heat.

Reference reading:

《Uniswap has the largest trading volume: a list of nine algorithmic stablecoins"

Basecoin: A scam more dangerous than Bitconnect"

"Algorithmic stable currency" is a false proposition"

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