Top 3 algorithmic stablecoins after UST collapse

Key Takeaways:

  • Terra UST's collapse paved the way for other stablecoins to take its throne.
  • Here are the top three stablecoins by market cap.
Several stablecoins moved to fill the vacuum after the departure of Terra's UST stablecoin
Several stablecoins moved to fill the vacuum after the departure of Terra’s UST stablecoin. Image from medium

NEW DELHI (CoinChapter.com) — Investor confidence in stablecoins took a severe hit after the collapse of Terra’s UST stablecoin in May. The resulting market crash took down the overall crypto market cap several notches, with Bitcoin (BTC) prices dropping below $20,000 for the first time in several months.

Stablecoins attract investors looking for safer investment options in an otherwise volatile crypto market. In detail, they are cryptos backed by reserve assets like fiat currencies, often the U.S. dollar, or a commodity price.

Ideally, a stablecoin aims to maintain a 1:1 peg with the currency backing it. Algorithmic stablecoins, as the name suggests, maintain their peg using an algorithm.

Typically, algorithmic stablecoins rely on two tokens  – a stablecoin and a cryptocurrency that backs it – with the algorithm regulating the relationship between the two tokens. In addition, the algorithm helps maintain the stablecoin’s peg by regulating supply and demand.

An algorithmic stablecoin is pegged to the value of a real-world asset but not backed by one.

The following three stablecoins are currently the largest in terms of market capitalization.

1. Neutrino USD (USDN)

Neutrino USD (USDN) is an algorithmic cryptocurrency pegged to the U.S. dollar. The WAVES token acts as collateral for the USDN stablecoin. The platform ensures USDN stability with the Neutrino Token (NSBT) through issuing, trading, and liquidation mechanics.

Neutrino USD has lost its peg to the dollar thrice in the last three months.
Neutrino USD has lost its peg to the dollar thrice in the last three months. Source: CoinMarketCap.com

The NeutrinoUSD’s prices fell more than 31% on Apr 4, dropping to its lowest after price manipulation scares surfaced. Moreover, USDD has recovered from two more de-pegs since Apr, falling to $0.825 on May 11 and $0.93 on Jun 14.

Also Read: USDC stablecoin market cap has surged by $7B since May — what does it mean for rival USDT?

USDN’s market cap dropped nearly 23% from $1.03 billion in early Apr to reach $784 million. In addition, analysts point out several similarities between the USDN and Terra’s UST peg mechanism, which might result in investors losing confidence in the Neutrino stablecoin.

At writing, USDN was trading at $0.9954, up 0.01% in the last 24 hours.

2. Decentralized USD (USDD)

Tron network’s stablecoin, Decentralized USD or USDD, has been trading below its peg since Jun 13. USDD fell nearly 7% on Jun 19 to trade at $0.93 before recovering its peg.

Meanwhile, USDD’s market cap recovered after dropping from $673.9 million on Jun 19 to reach nearly $707 million on Jun 27. However, Tron’s algorithmic stablecoin’s market cap is still down from its ATH market cap of $724 million.

The USDD stablecoin is struggling to hold on to its dollar peg
The USDD stablecoin is struggling to hold on to its dollar peg. Source: CoinMarketCap.com

USDD relies on an automated balancing mechanism that involves alternately creating and destroying units of USDD and TRX (Tron blockchain’s native token). Following the TerraUSD collapse, Tron boosted its transparency and added collateral to avoid UST’s fate.

A standby fund, the TronDAO reserve, helps collateralize the token. The fund holds TRX, Bitcoin (BTC), and other stablecoins, including Tether’s USDT and Circle’s USDC. At present, the total collateral stands at $2.3 billion.

3. FEI Stablecoin (FEI)

FEI is the stablecoin of the Fei Protocol, which claims to be a DeFi native algorithmic stablecoin. The token’s peg to the U.S. dollar has remained very near its peg over the last three months. FEI aims to be fully decentralized and more capital efficient.

Also Read: Tether’s $9B loss is arch stablecoin rival USDC’s gain.

Terra’s collapse did not have a significant effect on the Fei stablecoin. The token continued trading near its peg before dropping 8.5% on Jun 13, resulting in FEI’s peg reaching $0.91 before recovering.

The FEI stablecoin's peg to USD has been volatile over the last three months
The FEI stablecoin’s peg to USD has been volatile over the last three months. Source: CoinMarketCap.com

The project maintains its peg using two methods – Protocol controlled value and direct incentives.

Unlike other projects, the Fei protocol permanently retains the funds that users deposit. If the FEI price moved below the peg, the protocol would withdraw 99% of its liquidity to purchase FEI. If the token’s prices are above the $1 peg, the protocol mints more FEI to increase the supply and lower the prices.

The project also incentivizes the use and trading of FEI.

At writing, FEI was trading at $0.994, down 0.13% over the past 24 hours.

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Stablecoin, Top 3 algorithmic stablecoins after UST collapse

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