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A Brief Review of Algorithmic Stablecoin and its Foundation

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  • Introduction to stablecoins
  • What are Algorithmic stablecoins? 
  • The future of Algorithmic stablecoins 

Stablecoins are currencies that are generally pegged to a stable or reference asset. USDT is one such stablecoin Tether. They are one of the best forms of cryptocurrency for beginners to invest in. One of the most prominent cons of Stablecoin is the exchanges that occur in transactions between two parties in terms of Crypto. 

Introduction to Algorithmic Stablecoin

Stablecoins are an excellent way to exchange Cryptocurrencies rather than traditional fiat money. Accessibility between currencies has increased due to the use of Algorithmic Stablecoins. Algorithmic Stablecoins are tied to crypto assets, making them vulnerable to volatility.

Different types of Algorithmic Stablecoin

  • Rebase

It maintains assets by the peg. It ultimately added (minting) or removed (burning) the coins per the demand and stability of the digital currency. 

  • Seigniorage

These are algorithmic stablecoins that work on the multi-coin principle. One such coin is designed for stability, and the other is designed to absorb volatility. The seigniorage model usually applies a combination of protocol-based mint-and-burn mechanisms, urging stablecoin price according to the price peg.

  • Fractional-algorithmic

It is a combination of the previous two. It is partially backed collateral coded on the stability lines for the specific coin. 

Benefits of Owning Algorithmic Stablecoins

  • It would be a good learning experience for new crypto traders to invest in Stablecoins as there are minimal fluctuations. Still, the potential for loss is minimal as compare to other Cryptos.
  • It is the safest option to invest in out there as it is pegged to other Stable currencies or assets that don’t fluctuate that much and are only changed with time value of money, virtually constant in value.
  • Algorithmic Stablecoins can used for exchanges instead of fiat money, reducing the hassle of going through the traditional pathway of adding funds in wallets rather than making transactions efficient.

Cons of Algorithmic Stablecoin

  • The Algorithmic Stablecoin market is unregulated and is not as safe as other regulated markets.
  • It depends on the motivation of independent individual investors; people will follow the herd mentality.
  • Attackers also attack these algorithms by dumbing UST, which would result in a fall in the Stablecoin price. One such case happened with LUNA, where Luna Foundation Guard started buying the UST so their stablecoin didn’t fall.

Future of Algorithmic Stablecoin

Algorithmic Stablecoin meant to be safe, but its infrastructure is inferior to the modern-day parameters. Being dependent on other entities is also one of the major reasons it is difficult to invest, though the losses are less significant than other coins.

Recently Terra LUNA has proven the functionality of Stablecoin. One of the best examples of the efficient use of Stablecoins is that it has one of the best markets. One of the foundations of Algorithmic Stablecoins is TetherUSD, an exact definition of stablecoin. It has a bright future ahead; only it needs to improve its infrastructure, interface, and security issues.  

Market Cap of TerraLUNA, Source LunarCrush

The market capitalization of Terraluna is shows in the above image, which gives a clear perspective of it.  

Disclaimer

The views and opinions stated by the author, or any people named in this article, are for informational purposes only and do not establish financial, investment, or other advice. Investing in cryptocurrency comes with a risk of financial loss.

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