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Cryptocurrency

Sonic Joins the Stablecoin Race With High-Yield Debut

Sonic, a platform for decentralized finance (DeFi), has introduced a new algorithmic stablecoin that offers annual yields of up to 23%. The project has raised alarms yet again in the crypto community, like the incident of Terra-Luna that lost billions roughly three years back, although it seeks to innovate through new stability mechanisms.

Created by Andre Cronje, founder of Sonic Labs, the stablecoin is a giant step into the uncertain algorithmic stablecoin sector. Algorithmic stablecoins are not like regular stablecoins that have to be backed one-to-one with fiat reserves but instead make use of an advanced algorithm to maintain what is known as their peg. Creating an algorithmically stablecoin that can accomplish such a goal is no simple challenge. Such an approach is a risky strategy, and we witnessed that in May 2022, when UST collapsed. UST losing its one-dollar peg caused a market crash that bled tens of billions from investors. The sister token, Luna, collapsed by more than 98%.

A key developer at Fantom and Yearn Finance refers to the new stablecoin as a positive prototype!

As early tests show positive results, the APR will change yearly, depending on the total value locked (TVL) in the protocol. When the amount to borrow and lend in the coin exceeds $1 billion, then the APR will stabilize at around 4.9%.

Sonic claims to be the fastest EVM chain, which has attracted the attention of DeFi. In September 2024, its test net achieved transaction finality at 720ms, drawing interest from users and investors. The total value locked on the platform has increased to $253 million, indicating an increase of 66% since the rebranding from Fantom.

Despite these advancements, skepticism remains widespread. The failure of Terra-Luna is still a significant memory, and regulations have been established. The European Union’s upcoming Markets in Crypto-Assets Regulation (MiCA) bill includes provisions banning algorithmic stablecoins.

Though it lacks a defined use case, its trade volume across exchanges stands at a staggering US$21 million, a jump of almost 20,000%. The continuous activity shows not just crypto traders’ persistence but also their willingness to gamble on already dead projects.

Conclusion.

The future of Sonic’s stablecoin remains uncertain. Despite the platform’s claims of increased stability and transparency, past failures continue to shake investors. Is Sonic genuinely avoiding the Terra Luna setbacks and regaining investors’ confidence in algorithmic stablecoins? The crypto community is eagerly watching whether, this time, the test has a success or failure with the weight of history.

author avatar
Satpal S
Satpal is an Editor and Author at 4C Media Co, specializing in all stories and news related to crypto and finance.
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