The Sonic blockchain is moving forward with plans to introduce an algorithmic stablecoin that generates yield, despite lingering concerns about risks reminiscent of the Terra-Luna disaster, which triggered one of the longest downturns in the crypto market.
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Unlike fiat-backed stablecoins, which maintain value through reserves, algorithmic stablecoins use coded mechanisms to stabilize their price. Sonic’s new stablecoin aims to offer returns as high as 23% APR, according to Andre Cronje, co-founder of Sonic Labs and the creator of Yearn.finance.
On March 22, Cronje shared an update on social media, noting that initial testing showed yields exceeding 200% APR at $10 million in total value locked (TVL), stabilizing around 23.5% at $100 million, and settling at approximately 4.9% once TVL reaches $1 billion. He indicated that the project would be scaled up for a full launch.
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Cronje’s cautious optimism stems from his past experience with algorithmic stablecoins, admitting that the failures of previous cycles left him skeptical despite the promising results. In 2022, the collapse of Terra’s ecosystem wiped out billions in value, as its stablecoin UST, which once offered over 20% APY on Anchor Protocol, lost its peg to the U.S. dollar. The sister token LUNA, which was among the top cryptocurrencies by market capitalization, plummeted by over 98% in value.
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Sonic, which brands itself as the fastest Ethereum Virtual Machine (EVM) blockchain, claims a transaction finality of 720 milliseconds. The network has drawn significant attention since its testnet demonstrated this speed in September 2024.
The broader regulatory landscape is also shifting in response to past failures. In an effort to prevent similar collapses, the European Union’s MiCA regulation will prohibit the issuance of algorithmic stablecoins, aiming to bring more stability to the sector.
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Alexander Stefanov
