Blockchain Crypto Trading DeFi

Algorithmic Stablecoins: A Beginner’s Guide

Since the market is filled with the smell of a bull run. Algorithmic stablecoin, a DeFi product full of promising properties, is growing exponentially under the influence of the bull market.

Stablecoins have already acquired a large market. Reportedly, the total supply for stablecoin grew by about 493% from $5.9 billion at the beginning of 2020 to over $35 billion by the beginning of 2021.

Fueled by the surge in the decentralized finance (DeFi) market, Stablecoins have registered such impressive growth in 2020 that even the U.S. Office of the Controller of the Currency (OCC) announced that federally regulated banks can use stablecoins to conduct payments and other activities.

So what factors have contributed to the rise of Algorithmic Stablecoins and its recognition to reach a product-fit market?

What are Algorithmic Stablecoins?
Algorithmic Stablecoins are a new segment of cryptocurrency designed to achieve price stability and balance the circulating supply of the asset by being pegged to a reserve asset such as the US dollar, gold or any other foreign currency.

To put it in simple terms, the algorithmic stablecoins uses an algorithm underneath which issues more coins when price increases, and buys them off the market when the price falls.

These coins grant traders the comfort to reap many of the benefits of crypto assets like BTC and ETH without the risk of price volatility. 

It was in 2013 that the very first instances of algorithmic stablecoins were launched on the Bitshares blockchain. Presently, the longest-running algorithmic stablecoin is Ampleforth (AMPL).

It is an Ethereum-based cryptocurrency protocol with an algorithmically adjusted circulating supply. How Ampleforth works is that it adjusts its supply based on demand.

So whenever the demand goes up, the total supply of AMPL increases and when the demand goes down its total supply decreases making it a lot more affordable to ensure prices stay fixed and immutable.

Why do Algorithmic Stablecoins Do?
Algorithmic stablecoins are the true representation of decentralization with no regulatory bodies maintaining watch over proceedings as the code is what’s responsible for supply and demand, as well as ideal target price.

These foundational benefits offer a truly scalable solution not currently offered by any other asset out in the market. Also, the absence of tangible asset requirement behind Algorithmic Stablecoin almost eliminates the possibility of errors from the user’s end.

The other crucial contribution of Algorithmic stablecoin to the DeFi world is that it fills a need in the crypto ecosystem by bringing seignorage back into the coin ecosystem where it can be shared with users.

It also brings some basic laws of economic physics around the likelihood of a stablecoin accumulating enough collateral to hit the big time.  Also given the fact that these coins are programmed with code that is openly auditable, enables this mechanism to generate a lot of trust in the currency making them the most transparent and decentralized stablecoins.

Some of the most popular Algorithmic stablecoins currently in the market include Ampleforth (AMPL), DefiDollar (USDC), Empty Set Dollar (ESD), Frax (FRAX).

Bithumb Global recognizes the potential of the DeFi ecosystem and Algorithmic Stablecoins.

We are completely devoted to supporting and contributing to the rapid growth of decentralized finance space, the improvement of its protocols, and the breadth of offered services.

Therefore, we bring to our valued customers the benefits of trading in algorithmic stablecoins and participate in a truly decentralized financial ecosystem.

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