Algorithmic Stablecoins are considered to be a more upgraded version of already popular stablecoins, while critics consider them a disaster waiting to happen
A whole new debate seems to have started within the crypto space; this time, algorithmic stablecoins and their utilities took the place of being the point of discussion. It is considered the new type of crypto asset in the cryptocurrency market that seeks to replicate the dollar stability while keeping the blockchain utilities. On top of that, algorithmic stablecoins are positioned as some high-strung relatives of already available stablecoins.
In a nutshell, Algorithmic Stablecoins are the crypto tokens that utilize algorithmic stabilization to store the value of the assets, which is usually at $1. It keeps a view on value and supply; if there is an increase in the value of assets, it supplies tokens, while if there is a reduction of the assets, then there is a fall in the asset value.
Both supporters and critics of algorithmic stablecoins have their arguments according to their choices. Claims that supporters of algorithmic stablecoins make is that they are superior to traditional stablecoins as no centralized body has their authority. Rather they are being controlled autonomously via a blockchain-based network that takes aid from traders all across the globe to link the crypto assets to the dollar.
These types of arrangements in algorithmic stablecoins make overseeing them more challenging for governments or regulators. This feature alone plays a crucial role in making these new-age stablecoins more advanced across the crypto space. Since the regulators or governments can’t interfere directly, it increased scrutiny of these algorithmic stablecoins that are particularly backed by asset coins.
However, checking what opinions critics possess regarding algorithmic stablecoins is also important to consider. Critics of these algorithmic stablecoins claim that they are not likely to be stablecoins whose values stick to any assets like fiat currencies, US dollars, etc. They say that algorithmic stablecoins do not essentially support by any asset.
On the contrary, they depend on financial engineering or algorithms to sync their value to fiat currencies like dollars. This brings a huge uncertainty regarding their stability, and they come under the state of having constant vulnerability. Most non-collateralized digital assets connect their value to an already established asset like gold or dollar. However, the case with algorithmic stablecoins is that they only maintain the value because traders expect them to hold value in the upcoming time. Algorithmic stablecoins critics have skepticism, and they believe that they require a level of demand to stay relevant. If the demand goes beyond a certain limit anytime, the whole system will collapse because of them.
Source: https://www.thecoinrepublic.com/2022/04/27/what-do-algorithmic-stablecoins-possess-and-what-do-supporters-and-critics-think-of-them/