Stablecoins like UST, USN, USDD have a very tricky link to the dollar and the collateral pool, in the form of a native token of a particular blockchain, be it LUNA, NEAR, TRON, etc. Such projects offer or are about to offer 20-30% per annum in staking these stablecoins. Not a bad interest rate, is it? But will these projects be able to provide such a high interest rate all the time, and won't that provoke a cascading collapse of both the stablecoins, with the loss of the peg and a cascading collapse of the native tokens that act as reserve collateral?
After all, such high payouts to stakers must be accompanied by constant replenishment of these projects reserve funds. But what will happen if the money stops flowing in the right amount?
After all, such high payouts to stakers must be accompanied by constant replenishment of these projects reserve funds. But what will happen if the money stops flowing in the right amount?
the answer is what is happening to UST today. it is difficult to recover the peg and the price keeps falling. which is why algorithmic stablecoins are a flop in the crypto space. this mechanism only works when the market is good, but when the trend is bearish everything will collapse. and this failure could have happened in other stablecoins.
At the time, even centralized stablecoins like USDT also lost their anchor during market turmoil. I would say that now, in its current form, any stablecoin is unsustainable to one degree or another. I also think the problem with algorithmic stablecoins is that such systems need constant feeding, there needs to be constant demand. But constant demand in crypto space is a relatively rare thing, only bitcoin has this property, but unlike algorithmic stablecoin, it has limited supply. So now all these algorithmic schemes remind financial pyramids, where the scheme works as long as there is an inflow of money, as soon as the outflow begins, the scheme folds like a house of cards.
