Sonic Labs has canceled plans to launch a US dollar-pegged algorithmic stablecoin, opting instead to develop a United Arab Emirates dirham-denominated alternative.
On March 22, Sonic Labs co-founder Andre Cronje said the company was working on a US dollar-pegged algorithmic stablecoin with an annual percentage rate (APR) of up to 23%, Cointelegraph reported.
However, one week later, the firm reversed course.
โWe will no longer be releasing a USD based algorithmic stable coin,โ Cronje said in a March 28 X post. โCompletely unrelated, we will be releasing a mathematically bound numerical Dirham which is settled and denominated in USD, which is definitely not a USD based algorithmic stable coin.โ
The shift in strategy comes shortly after the UAE announced it would launch its digital dirham central bank digital currency (CBDC) in the fourth quarter of 2025.
Source: Andre Cronje
Khaled Mohamed Balama, governor of the Central Bank of the UAE, said the blockchain-based dirham could enhance financial stability and help combat financial crime. The digital currency will be accepted alongside its physical counterpart in all payment channels, according to a report from the Khaleej Times.
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Sonic faced criticism over stablecoin plans
The reversal follows widespread criticism of Sonicโs original plan to launch an algorithmic stablecoin โ a model that has raised concerns across the crypto industry since the collapse of the Terra ecosystem in 2022.
Cronje himself previously admitted to experiencing Post-traumatic stress disorder (PTSD) related to algorithmic stablecoin due to previous cycles:
โPretty sure our team cracked algo stable coins today, but previous cycle gave me so much PTSD not sure if we should implement.โ
In May 2022, the $40 billion Terra ecosystem collapsed, erasing tens of billions of dollars of value in a matter of days. Terraโs algorithmic stablecoin, TerraUSD (UST), had been yielding an over 20% annual percentage yield (APY) on Anchor Protocol prior to its collapse.
As UST lost its dollar peg, crashing to a low of around $0.30, Terraform Labs co-founder Do Kwon took to X (then Twitter) to share his rescue plan. At the same time, the value of sister token LUNA โ once a top 10 crypto project by market capitalization โ plunged over 98% to $0.84. LUNA was trading north of $120 in early April 2022.
Related: Tetherโs US treasury holdings surpass Canada, Taiwan, ranks 7th globally
The collapse of the algorithmic stablecoin issuer created shockwaves among both crypto investors and lawmakers.
To reduce systemic risk, the European Unionโs Markets in Crypto-Assets Regulation (MiCA) bill will prohibit algorithmic stablecoins to avoid another Terra-like failure.
Meanwhile, stablecoins are increasingly being used for smaller, everyday payments rather than large transfers, according to CoinFund managing partner David Pakman.
โWeโve seen a significant decrease in the size of each stablecoin transaction, which points to the fact that they are being used more as payments and less for large transfers,โ Pakman said during Cointelegraphโs Chainreaction live show on X on March 27.
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