Sonic Introduces High-Yield Algorithmic Stablecoin, Reviving Concerns Over Terra-Luna Collapse
The Sonic blockchain has announced plans to launch a high-yield algorithmic stablecoin, reigniting fears of a potential collapse similar to the infamous Terra-Luna meltdown in 2022.
Sonic’s Ambitious Stablecoin Project
Andre Cronje, co-founder of Sonic Labs and founder of Yearn.finance, revealed that Sonic is developing an algorithmic stablecoin offering yields as high as 23% annual percentage rate (APR). Cronje shared details in a recent X post:
“POC looks good. Yielding > 200% APR @ 10m TVL, around 23.5% APR @ 100m, steady at around 4.9% at 1bn+. Will scale up and get team for a full release.”
This announcement follows Cronje’s earlier admission of experiencing “PTSD” from previous algorithmic stablecoin failures, notably the Terra-Luna collapse.
Echoes of Terra-Luna’s Collapse
In May 2022, the Terra ecosystem, valued at approximately $40 billion, collapsed dramatically. Its algorithmic stablecoin, TerraUSD (UST), lost its dollar peg, plunging to around $0.30. The associated token, LUNA, fell over 98% from highs above $120 to under $1, wiping out billions in investor value.
The Terra collapse triggered a prolonged crypto winter and led to increased regulatory scrutiny worldwide.
Regulatory Concerns and Market Reactions
In response to the Terra disaster, regulators have tightened rules around stablecoins. The European Union’s Markets in Crypto-Assets Regulation (MiCA) explicitly prohibits the issuance of algorithmic stablecoins to prevent similar collapses.
Despite these concerns, Sonic continues to push forward, touting itself as the world’s fastest Ethereum Virtual Machine (EVM) blockchain, achieving transaction finality in just 720 milliseconds.
Investors Still Trading Collapsed LUNA Token
Interestingly, despite its catastrophic collapse, Terra’s LUNA token continues to see significant trading activity. Over the past 24 hours alone, LUNA recorded over $21 million in trading volume, indicating ongoing investor interest despite its near-total loss in value.
Quick Summary
- Sonic blockchain plans to launch a high-yield algorithmic stablecoin.
- Andre Cronje claims yields could reach up to 23% APR.
- Announcement revives fears of a repeat of the Terra-Luna collapse.
- Terra’s collapse in 2022 erased billions and triggered regulatory crackdowns.
- EU’s MiCA regulation now prohibits algorithmic stablecoins.
- Despite past failures, investor interest in collapsed tokens like LUNA persists.
