The end of most algorithmic stablecoins is nigh; Reeve Collins

The UST-based stablecoin of Terra has fallen in value recently. And some experts believe it indicates the risk of other algorithmic stablecoins. Tether, the largest and most popular stablecoin, is also an algorithmic stablecoin.

Algorithmic stablecoins are a new breed of digital asset that aim to stabilize their price by algorithmically adjusting their supply. They were created in response to the volatility of traditional cryptocurrencies like Bitcoin and Ethereum.

The Terra blockchain recently collapsed, with billions of dollars worth of assets lost in a matter of days. The price of the Tether token also plummeted during that time.

Some experts believe that this is a sign that algorithmic stablecoins are not as stable as they seem. Reeve Collins, CEO of BlockFuse, believes that the end is near for most of these coins.

UST is an algorithmic stablecoin, as opposed to USDT and USDC, which are pegged to the US Dollar. The mechanism that governs the UST is an algorithm.

The algorithm is designed to keep the price of the token stable. However, it seems that the algorithm is not working as planned.

During times of market uncertainty, investors tend to flock to safe-haven assets like gold and the US Dollar. This causes the price of Tether to drop.

Reeve Collins, the co-founder of BLOCKv and co-founder of another stablecoin tether, told CNBC in a recent interview that he believes UST’s collapse will probably be the end of most algorithmic stablecoins. 

He mentions this during an interview with CNBC at the World Economic Forum in Davos. Collins states that; 

“It’s unfortunate that the money … was lost, however, it’s not a surprise. It’s an algorithmic-backed, stablecoin. So it’s just a bunch of smart people trying to figure out how to peg something to the dollar. And a lot of people pulled out their money in the last few months because they realized that it wasn’t sustainable. So that crash kind of had a cascade effect. And it will probably be the end of most algo stablecoins.”

In recent weeks, the collapse of Terra has been discussed by many big names in the cryptocurrency sector. Binance’s CEO, Changpeng Zhao, spoke extensively about the failure and helped to restart the blockchain.

Jeremy Allaire, CEO of Circle, one of the companies behind the issuance of the USDC stablecoin, also states that;

“I’ve compared algorithmic stable coins to the Fountain of Youth or the Holy Grail. Others have referred to it as financial alchemy. And so there will continue to be financial alchemists who work on the magic potion to create these things and to find … the Holy Grail of a stable value, algorithmic digital currency. So I fully expect continued pursuit of that.”

While Tether’s position as the top stablecoin remains unthreatened in the near term. There is certainly a move to unseat the current king.

With enough time, one of these challenges may eventually succeed. Tether has had its issues in the past, and if nothing else. The last few weeks have shown that the market is more than ready for a change.

Algorand, on the other hand, uses a pure proof-of-stake consensus algorithm, which means that there is no need for powerful hardware or large amounts of electricity.

The collapse of UST has led to talks about regulating the stablecoin ecosystem. Tether, being the largest and most popular stablecoin, will likely be the first target of any such regulation.

This could have a devastating effect on Tether’s market dominance and ultimately lead to its downfall.

It is clear that the days of Tether’s monopoly are numbered. The question now is who will be the one to finally dethrone it?