Algorithmic stablecoin is under a hot discussion recently especially following the SEC's lawsuit against Ripple.
This further fuels investors' concerns on the stricter regulation measurement - essentially the distrust towards centralized institutions.
Moreover, the distrust also pervaded from Ripple to Tether, the latter plays a more important role in crypto market, accounting for 90% of stablecoin market shares.
USDT, the hard token in the exchange between fiat currency and cryptocurrency, as it were, is the cornerstone to support the prospect of the crypto market.
Once Tether gets in trouble, the whole crypto market will collapse then.
That is not impossible, as the former investigation on Tether is no less than that of Ripple, despite eventually never continuing. However, with cryptocurrencies becoming more and more regarded as mainstream financial products, the belated financial regulation will come sooner or later.
Moreover, it now accelerates its steps, hence the algorithmic stablecoin is unprecedentedly meaningful.
2020 - An Experiment
Algorithmic stablecoin is not the only decentralized stablecoin. Actually, back in 2017, MakerDAO rolled out its stablecoin DAI - produced via staking.
What goes wrong is that the staked cryptocurrencies experienced relative huge volatility, therefore, it possibly results in users' funds could be liquidated eventually.
However, algorithmic stablecoin needs not any staking but rather adjusting the supply via algorithm - when algorithmic stablecoin reaches a pre-setting balance point, the smart contract to adjust supply will be triggered till the next balance point is triggered.
For example, AMPL, which boomed amid the DeFi wave, is a successful experiment in terms of algorithmic stablecoin. However, the means that maintains a stable flexible supply mechanism for AMPL is simple and crude - add and cut the funds balance of all users' wallet in accordance with the same proportion of the price volatility.
Later, Empty Set Dollar (ESD) made an adjustment on the base of AMPL - 80% of the new-minted ESD would be allocated to a decentralized automatic organization, while the rest to liquidity providers. This at least maintained the balance sheet would never be volatile.
The follower Basis Cash is designed to be an advanced-complicated financial product.
Basis Cash directly builds up the stablecoin system via 3 kinds of tokens, making them pegged with its 3 different kinds assets: Basis Cash pegged with $1; Basis Share being the governance token; Basis Bond being graded yield bonds.
These three tokens play different roles so as to satisfy different demands from users, investors, and speculators and maintain the stability via their coordination.
Unlike AMPL which "was bullish on algorithmic stablecoin for its instability", this offers speculators a huge profit room in the short term, which instead hinders users' experience.
2021 - A Golden Time
Looking through the development of algorithmic stablecoin in 2020, it could be easily found that its mechanism has become more complicated like the traditional financial products.
Moreover, since cryptocurrencies are still unregulated and experimental, the current algorithmic stablecoin is more like a money game. This is not to badmouth the coin.
Any fund wave comes and goes, there are always some valuable things left, like Filecoin and Polkadot in the ICO period.
Given the current regulation trend, 2021 will unexpectedly see Tether experiences the Ripple-type investigation. And nobody ever knows whether USDT really complies with its announcement that pegged each USDT with $1.
However, as is known, the supply of USDT added $16 billion in 2020 alone, from $4 billion to the current $20 billion. And also, each time Bitcoin slumps, USDT will proliferate.
As of now, nearly all predictions toward the cryptocurrencies trend in 2021 are optimistic, and once USDT gets in trouble, what will act as the hard token in the crypto market? Seemingly, the algorithmic stablecoin is the best alternative.
However, the current algorithmic stablecoin is still at a very initial stage, as it learns too much from traditional finance.
If it makes a name in 2021, it must reconstruct its stability on the base of the original feature of blockchain - similar to Uniswap, which redefine the decentralized exchange via 500 codes.