Sonic Blockchain is considering launching an algorithmic stablecoin featuring high-yield capabilities that provide up to a 23% annual percentage rate. However, the announcement has sent chills across the market with some market participants feeling energized while some are afraid of a re-occurrence of the TerraLuna-like incident. 

Investors still recall the collapse of Terra-Luna which resulted in an immediate loss of billions of dollars. The success of Sonic’s stablecoin depends on whether the coin will avoid the same downfall as Terra Luna. 

Sonic To Develop Algorithmic Stablecoin with High-Yield Potential

Despite several sustainability-related worries, Sonic Blockchain is advancing its project to develop an algorithmic stablecoin. This stablecoin will provide an attractive annual percentage rate (APR) of 23% if the total value locked reaches $100 million according to Andre Cronje. Cronje presented preliminary results on X which indicated that there will be 200% annual percentage returns when the project reaches $10 million in total value locked.

Cronje spoke about the past algorithmic stablecoin breakdowns by admitting that his team has succeeded in creating such a coin. However, the previous cycle’s traumatic experience had him questioning the implementation decision. The collapse of TerraUSD (UST) in 2022 alongside its catastrophic market crash in 2022 makes him reluctant to bring a similar project into existence. 

Terra-Luna Collapse Raises Concerns Over Algorithmic Stablecoins

The collapse of TerraUSD (UST) in May 2022 resulted in the loss of billions of dollars over a short period. Terra Luna’s UST protocol used its sister token LUNA together with automatic mathematical mechanisms to sustain its U.S. dollar value. However, the market turbulence triggered an asset sell-off which broke the peg between UST and USD while LUNA fell to rock-bottom prices. 

LUNA exceeded $120 before its disastrous plummet resulted in a 98% price dip. Data on  CoinMarketCap shows that the LUNA token has recorded $21 million over the last 24 hours. Terra Luna’s crash triggered European Union regulators to enact the Crypto-Assets Regulation (MiCA), which prohibits the issuance of algorithmic stablecoins. The move aims to stop re-occurrence of a similar collapse like that of Terra Luna.

Sonic’s Blockchain Innovations and Market Position

The Sonic has gained recognition as the fastest Ethereum Virtual Machine (EVM). Sonic blockchain provides finality for transactions at 720 milliseconds making it rank among the fastest network solutions in the industry.

Sonic’s brand change from Fantom resulted in an improvement of its total value locked (TVL) making it reach $253 million. The platform’s goal is to create efficient decentralized finance (DeFi) application solutions with scalable operations. Sonic desires to be recognized as a leading DeFi operator through its algorithmically driven stablecoin platform.

Regulatory Outlook and Investor Sentiment

Terra Luna’s collapse has made regulators examine algorithmic stablecoins with increased attention. Financial authorities such as the U.S SEC and other institutions actively watch newly launched crypto projects to protect market participants. According to MiCA bill regulations from the European Union algorithms stablecoins are completely prohibited from issuance to prevent related dangers. 

But still, investor sentiment remains mixed. Some investors view Sonic’s stablecoin as a chance to earn high returns while others are skeptical about the token facing a similar fate to Terra Luna. However, the sustainability of Sonic’s algorithmic model will determine the project’s success rate against market fluctuations.

The industry will closely follow Sonic’s stablecoin to determine if it can survive the fate of Terra-Luna or if it will take its place in crypto history as a cautionary tale.