Cardano founder backs Algorithmic Stablecoin for BTC’s vision

Cardano founder Charles Hoskinson believes algorithmic stablecoins will help achieve Satoshi Nakamoto’s vision for Bitcoin. According to him, the banks will always fail the users.

Hoskinson was responding to Kraken CEO Jesse Powell’s observation that USDT’s value increased following the decline of rival USDC. According to Powell, this price movement showed that the crypto market lost faith in US-based financial products.

In response, Hoskinson tweeted that he “believes that algorithmic stablecoins … are the most essential research stream to realize the original vision of Bitcoin.”

What are Algorithmic Stablecoins?

Algorithmic stablecoins are stablecoins designed to adhere to mathematical equations and incentives. Usually these stablecoins are unsecured and an algorithm controls their access.

The defunct Terra UST was the most successful algorithmic stablecoin. At its peak, UST was a top three stablecoin, and its marketing supply reached over 17 billion. Eventually, the stablecoin witnessed a death spiral event that saw it lose its pin and lead to its eventual demise.

Since then, several iterations of algorithmic stablecoins have emerged with varying degrees of success.

For context, Cardano-based overcollateralized stablecoin DJED has maintained its peg and is trading at a premium of $1.01 in the face of USDC struggles. Meanwhile, other algorithmic stablecoins exposed to USDC, such as FRAX and DAI, have lost their pegs. DAI is down 6% in the last 24 hours to $0.93, and FRAX is down 10% to $0.90.

Recently, BitMEX co-founder Arthur Hayes also proposed a new stablecoin backed by Bitcoin called NakaDollar (NUSD). He said that this stablecoin would remove the crypto market’s dependence on stablecoins with US dollar reserves.

Hoskinson chastises the Federal Reserve

Meanwhile, Hoskinson has too criticised Federal Reserve’s rejection of Custodia bank. He said the authorities “felt that full reserve banks like Custodia are not fit for purpose and introduce risk into the markets. So they would rather have Circle’s assets in fractional reserve banks like SVB because it is safer.”

In a separate tweet, the Cardano founder also added:

“Banks will always fail you as long as they are fractional.”

Custodia bank chief executive Caitlin Long said her bank had also been denied and scorned in its bid to be regulated by the government. According to the bank manager, the financial regulators’ approach to crypto has stifled good players and failed to protect investors.

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