Are algorithmic stablecoins an innovation or a scam?

Editor's Note: This article comes fromBlock beats BlockBeats (ID: BlockBeats), reprinted by Odaily with authorization.

Editor's Note: This article comes from

Block beats BlockBeats (ID: BlockBeats)

Block beats BlockBeats (ID: BlockBeats)

, reprinted by Odaily with authorization.

Due to the wealth effect caused by the increase, algorithmic stablecoins have recently occupied the front page headlines of major industry media and market software search bars.

Algorithmic stablecoins Base Protocol and Basis Cash both rank in the top ten of Uniswap's daily trading volume, while the old algorithmic stablecoin AMPL ranks 12th in trading volume, and Base Protocol is also ranked first in the popularity of data aggregation platform CoinGecko.

Not only in terms of trading volume, search volume, and media attention, the community also has a strong discussion on algorithmic stablecoins. Some people think that the algorithmic stablecoin is a revolutionary innovation, which will be used as a smart contract-based "Federal Reserve" to rationally manage market capital circulation. 's scam.

Pan Chao, the head of MakerDAO in China, published two articles titled "Basecoin: A Scam More Dangerous Than Bitconnect" and "Algorithmic Stablecoin" Is a False Proposition in 2018 and 2019. Interestingly, the The protagonists are Basic (the predecessor of Basis Cash) and AMPL, which are the most popular algorithmic stablecoins today.

This article organizes the different views of the community as follows.

Twitter user Andrew Kang said that similar to the concept of oracles in 2020, algorithmic stablecoins may usher in a big explosion in the future. The number of fiat-anchored stablecoins has grown surprisingly recently, and the growth rate has not slowed down significantly. However, due to the nature of the stablecoin, if users do not hold the company that issued the stablecoin, they will not be able to obtain dividends from the growth of the stablecoin. Even MakerDAO will not be able to obtain the benefits it deserves during the crazy issuance of DAI. At the same time, the anchored fiat currency stable currency does not have the characteristics of decentralization, and there is a possibility of being forcibly processed by a centralized organization.

And if the user holds the algorithmic stable currency, as the market value of the stable currency increases, he can enjoy this part of the dividend. Algorithmic stablecoins need to be continuously expanded to meet the real demand. At this time, there is a paradox. There is no demand and the supply cannot be expanded. However, if the supply is insufficient, algorithmic stablecoins are difficult to stabilize, and users will not generate demand. To solve this problem, it needs to evolve into a "Ponzi scheme" to expand the market size of the algorithmic stable currency by attracting speculators who follow the interest. Similar to the second pool concept of Farming, algorithmic stablecoins also need high returns in the early stages to attract funds to expand their scale. (Rhythm note, Andrew Kang is an ESD stakeholder.)

Crypto Insights stated that the algorithmic stablecoin is not a stablecoin in the true sense, but an algorithmically adjusted stablecoin.

Some users also said that the market will provide a market for algorithmic stablecoins among anchored stablecoins and partially mortgaged stablecoins. Algorithmic stablecoins will always exist as an integral part of a healthy market.

There are also many users who expressed confusion about the popularity of algorithmic stablecoins, and reminded them of risks.

First of all, the author believes that some fields cannot be absolutely market-oriented, and the so-called "algorithmic stablecoin" is difficult to be truly stable, so as to satisfy its most important and only function, that is, to be stable to meet the role of a trading medium. Even if the algorithmic stable currency achieves a large enough scale, there is no evidence that it can maintain sufficient stability. If the market value expands to the so-called "sufficient amount" and fails to achieve the ideal stable currency state, it cannot be used as a trading medium. practicability, then the algorithmic stable currency may become a real "Ponzi scheme".