FREE Report: Economics of Algo Stablecoins | by Econteric.com 👀
In today's post, we'll analyse several aspects of the ecosystem & main players, along with a simple case study of Frax Protocol.
The topic considered for this research is Algorithmic Stable Coins. Without going into the details of their operation and the reason for their existence, a topic widely discussed in the research [downloadable here](https://econteric.com/stablecoin/algo/), these coins and related projects are attracting a lot of attention. The research carried out considers 8 projects that differ from each other in mechanisms and stabilisation algorithms.
What Are Algorithmic stablecoins?
Algorithmic stablecoins are tokens pegged to a fiat currency which is usually the US dollar. They respond to market events using predetermined stabilisation measures hardcoded into smart contracts on Ethereum. This greatly increases their decentralisation and has the opportunity to create a smart, fast, responsive global currency not governed by a single institution that can act as a medium of exchange not just for DeFi but the whole world.
Ecosystem And Main Players
That sounds great, doesn’t it? A smart currency that never deviates from its peg and doesn’t require any capital lockup to back up its validity. In practice, this space is still nascent and hasn’t reached peak potential or actually acquired the critical mass of users and liquidity to accurately keep their pegs and offer a viable incentive to users to stabilise the currencies.
The goal of this project was to find how viable algo stablecoins are in practice, how accurately they keep their pegs, how they are governed and how they interact with the user and the broader ecosystem.
Right now the main players in the space are Terra Money, Frax, Reserve, Ampleforth, Empty Set Dollar, Dynamic Set Dollar, Debasonomics and Basis Cash. These are also the protocols that we included in our analysis. One that stands out is Terra which evolved from a non-ERC20 project in the South Korean ECo...