Stablecoins in their nomenclature has their value pegged to another currency or financial instrument. This in turn provides a less volatile and more stable crypto token. This peg is achieved through two major methods. There is the Collateral Mechanism which can be fiat or crypto-based. There is also the algorithm protocol. For this article, we will examine the Algorithm Protocol and five stablecoins that are pegged by this protocol.
The algorithm protocol makes use of two major models to maintain this peg. One is Rebase. This model controls the base supply to maintain this peg by burning and minting tokens based on the price deviation from the $1 peg. The second is the Seigniorage model. In this model, two coins are utilized. One is designed to be stable and the other is designed to facilitate the stability of the stable one.
Some of the Stablecoins that are pegged with this algorithm protocol will be examined below:
Basis cash is with decentralized community governance and transparent operational funding through community Development Funds proposals. Basis cash aims a peg to US$1 and it’s intended to be a medium of exchange. Its supply is expanded indirectly through shareholder seigniorage dividends to maintain the peg. In line with the seigniorage model, Basis Cash BAC is the stable coin while Basis Share BAS is the second coin which facilitates the stability of BAC. Both BAS and BAC are distributed and earned through yield farming. This provides a form of liquidity to BAC-DAI and BAS-DAI pairs and in turn, it leads to the additional distribution of BAS tokens.
At the time of this writing according to coin market cap, BAC’s market cap is US $331,146 and an average 24 hours volume of US $88. Both have reduced by 4% and 99% respectively. BAC is currently worth US $0.006032 with 54,575,145 BAC tokens in circulation. Considering the marketcap it generated at its ICO, BAC is one the least thriving algorithm stablecoin as its market cap has fallen from $133 million and its value has dropped far below its planned $1 peg.
USDD is a cryptocurrency issued by the TRON DAO reserve launched on the BNB chain, with a stable price and diverse use cases. It was launched into circulation on the 5th of May 2022. Through the in-built mechanism this reserve possesses, USDD can self-stabilize against price fluctuations and helps USDD consolidate as a settlement token. USDD is directly managed by Tron DAO and it’s pegged to the US dollar at a 1:1 ratio. Hence, the value of a token is equivalent to that of the US dollar. USDD does not rely on any of the centralized institutions for redemption, management or storage. USDD is pinned to the underlying asset TRX and it’s issued in a decentralized manner.
At the time of this writing according to coin market cap, USDD has a total marketcap of US $716,767,258.60 with an average trading volume of $277,903,612.47 per 24 hours one USDD token is worth US $1 with a total of 723,321,765 USDD tokens in circulation. USDD is ranked 57 on the market cap. Also, its trading volume has been rising significantly with an average increase of 77.83% in 24 hours. Despite the fact that the price and marketcap has fallen by 0.96% and 0.90% respectively, USDD can still be regarded as one of the most stablecoins as it has maintained the dollar peg over time.
UXD is a stablecoin built on the Solana network. UXD is the most used asset in Defi. This is because of its versatility, flexibility, and accessibility. UXD is backed by a Delta-Neutral position. This is done so it can provide solutions to the risks linked with stablecoins. Also, USD is aimed at solving the Stable-coin trilemma. The Delta-Neutral is made for every UXD dollar issued. With this, users can redeem their collateral deposits with UXD.
Two important positive attributes of UXD are that decentralization is a priority. The protocol has integrated itself into the Defi ecosystem on Solana. This has been done by using an external derivative DEX, which in turn utilizes decentralized Oracles. Also, UXD, like Primitive Concepts, reduces costs at the base, which results in a whole Defi operability improvement and optimization. This will set a new standard for the Solana Ecosystem and see an increase in UXD adoption.
At the time of this writing according to coingecko, UXD has a marketcap of $36,195,189 with an average trading volume of 1,808,735. One UXD token is worth $1.0. Although ranked 454 in the marketcap, UXD has been thriving greatly as it has maintained the dollar peg with a little de-pegging and immediate recovery. Its all-time-low was $0.876103 and its all-time high was$1.03.
This stable coin lost its dollar peg in May 2022 and made the headlines as it has shaken the whole cryptomarket. But before this de-pegging, UST made use of an algorithmic protocol as its dollar peg. UST has a sister token LUNA. LUNA serves as the facilitator through which UST is pegged. UST also makes use of the rebase model (burning and minting) to keep the $1 peg. This is done in correspondence to the price of either LUNA or UST. Hence, before a stablecoin can be gotten in exchange for LUNA, the equivalent amount of LUNA will be burnt. UST was founded in 2018 by Daniel Shin and Do Kwoon.
Just as stated above, UST has de-pegged recently which has led to a massive loss for investors. UST has fallen from its all time high of $1.04 and is currently at $0.00825403. A 99.2% dip. Among all algorithm stable coins, UST has fallen from its designated value as it has lost its peg. The developers are working on revamping it. It’s called LUNA 2.0.
Ampleforth – AMPL:
Ampleforth was founded by Evan Kuo. Ampleforth stable coin is based on the Ethereum network with an algorithmically adjusted circulating supply. This is one of the first algorithmic stablecoins that utilizes the rebase model. The project has only one token — AMPL. When the value of the token is greater than $1, the protocol then mints more tokens to be pushed into supply. And when the price is lower than $1, the protocol burns a few tokens-Rebase. AMPL is a synthetic commodity currency, which is classified as an algorithmic stablecoin. It is designed to provide an asset that cannot be diluted by supply inflation and remains decoupled to the price action of other cryptocurrencies.
At the time of the writing, according to coin market cap, AMPL has a today market cap of $48,479million and an average of $3.729 million trading volume per 24 hours. One AMPL token is worth $0.8828 with a maximum supply of 395.345 million tokens but 55.136 million tokens are supplied and 54.196 tokens are in circulation. AMPL is currently a little below its one-dollar peg. It’s not so great at the moment but far better when compared to BAC and UST.
Algorithmic stablecoins provide opportunities for innovation. They represent opportunities to push the bounds on innovations in the Defi space because of their greatly decentralized nature.