The United States dollar is exhibiting strong performance in 2024, as is the market for digital assets tied to the currency. Ethena’s synthetic dollar, USDe, has a market capitalization of nearly $3.4 billion, drawing rivals searching for a share of the global stablecoin market.
The latest initiative to join this race is Asymmetry Finance. Through a partnership with Ampleforth and Paid Network, the company is launching the fully onchain synthetic dollar afUSD, with an elastic supply based on market conditions.
The algorithmic stablecoin uses Ampleforth’s adjustment mechanism, which manipulates a token supply toward a certain price. According to Asymmetry, the system is more secure and scalable than similar products, such as Ethena’s USDe.
“It’s important to understand that there are no breaking conditions. There are no oracles that can be manipulated, and the system can bend, but not break,” a spokesperson for Asymmetry told Cointelegraph. Behind the initiative are former members of Genesis Global Trading, Quantstamp, LayerZero and other crypto firms.
Algorithmic stablecoins use a set of rules, or algorithms, to maintain their value against a target price, typically a fiat currency like the U.S. dollar. Unlike traditional stablecoins, which are backed by reserves of lower-risk assets, algorithmic stablecoins rely on the algorithms to stabilize their price.
Related: Ethena Labs adds Bitcoin backing to its USDe synthetic dollar
Similar crypto products failed to accomplish the task in the past. The most significant failure in the history of algorithmic stablecoins was the collapse of TerraUSD (UST) in May 2022. The stablecoin was designed to maintain its peg through a mechanism involving another token, Terra (LUNA). Users could always trade 1 UST for $1 worth of LUNA and vice versa.
However, during a market downturn, a massive sell-off hyperinflated LUNA. The event sparked a death spiral where the value of both tokens plummeted, erasing billions of dollars in market value and causing months of turmoil in the crypto industry.
According to Asymmetry, its elastic model can protect its stablecoin from real-world financial stress.
“Unlike traditional stablecoins, afUSD utilizes Ampleforth’s AMPL [...] eliminating the need for conventional collateral and associated risks. Its fully onchain nature enhances decentralization and security,” said the spokesperson. “Ethena cannot scale infinitely, and users will seek other options."
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