Sonic (S) Develops an Algorithmic Stablecoin Promising 23% APR

The DeFi sector is abuzz with the news of Sonic (S) developing an algorithmic stablecoin which could offer an attractive annual percentage rate (APR) of 23%.

Stablecoins are usually pegged to an underlying fiat currency such as the US dollar, with prominent examples being USDT and USDC, while an algorithmic stablecoin relies on being governed by an algorithm or code-based mechanism.

Sonic is a layer-1 EVM compatible blockchain, previously known as Fantom. Sonic has recently gained traction with a total value locked of US$850M (AU$1.35B), while remaining front and centre of Crypto Twitter, with prominent KOLs (Key Opinion Leaders) such as Miles Deutscher just last month highlighting the rapid growth of Sonic:

Sonic ( $S ) mindshare and sentiment went parabolic last week.This was one of those times where you could have front-run crypto twitter by paying attention to on-chain metrics, which have quite literally been up only since January.

The market cap of stablecoins on Sonic has also surged from US$100M (AU$159M) to US$250M (AU$397M), while bridged TVL doubled from US$600M (AU$954M) to US$1.2B (AU$1.9B).

These metrics are worth paying attention to, despite the price of Sonic falling (which is not uncommon for most altcoins during recent months).

In just a month:@SonicLabs TVL surged from $500M to $850MStablecoins market cap soared from $100M to $250MBridged TVL doubled from $600M to $1.2BBut here’s the kicker: despite massive growth, price took a 40% dip.The fundamentals are speaking for themselves.Sonic.

Sonic claims to be the highest-performing EVM blockchain and focuses on the DeFi niche. Sonic boasts a transaction speed of around 400k/s with an average transaction cost of US$0.001.

Related: Trump’s Crypto Council Forecasts US Stablecoin Bill Within Two Months

However, scepticism and caution towards algorithmic stablecoins remains high in the industry following the 2022 collapse of Terra-Luna and its algorithmic stablecoin UST, with Cronje recognising this fact:

Pretty sure our team cracked algo stable coins today, but previous cycle gave me so much PTSD not sure if we should implement.

The Terra-Luna Crash

Crypto veterans may remember the collapse of Terra-Luna in 2022. Many believe that, in conjunction with the fall of FTX, it caused an unusually brutal bear market. Luna had previously been one of the ‘darlings’ of the 2021 bull market. But with the unpegging of Terra-Luna’s algorithmic stablecoin UST, both Luna and UST went into a freefall towards their demise (though Luna is still traded today at much lower valuations).

This has left investors rightfully cautious towards algorithmic stablecoins, which were once seen as a reasonably safe and reliable way to earn a great yield with your funds. Now more people are questioning where this yield comes from, and how sustainable it is.

Full details regarding how Sonic's algorithmic stablecoin will be coded and function have yet to be released, time will tell how sustainable the venture is, and whether it can usher in a new wave of innovation and stability amongst algorithmic stablecoins.