{"id":62095,"date":"2022-05-27T10:51:00","date_gmt":"2022-05-27T07:51:00","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=62095"},"modified":"2025-09-05T15:57:16","modified_gmt":"2025-09-05T12:57:16","slug":"vitalik-buterin-lists-signs-of-resilient-algorithmic-stablecoins","status":"publish","type":"post","link":"https:\/\/u1f987.com\/en\/vitalik-buterin-lists-signs-of-resilient-algorithmic-stablecoins\/","title":{"rendered":"Vitalik Buterin lists signs of resilient algorithmic stablecoins"},"content":{"rendered":"<p>Despite the collapse of TerraUSD (UST) and the market&#8217;s &#8216;multitude of imperfect&#8217; stablecoins, the industry should not abandon projects in this category, said Ethereum founder Vitalik Buterin.<\/p>\n<blockquote class='twitter-tweet'>\n<p lang='en' dir='ltr'>Two thought experiments to evaluate automated stablecoins:<a href='https:\/\/t.co\/gqPKb42tL8'>https:\/\/t.co\/gqPKb42tL8<\/a><\/p>\n<p>\u2014 vitalik.eth (@VitalikButerin) <a href='https:\/\/twitter.com\/VitalikButerin\/status\/1529850412760674304?ref_src=twsrc%5Etfw'>May 26, 2022<\/a><\/p><\/blockquote>\n<p> <script async src='https:\/\/platform.twitter.com\/widgets.js' charset='utf-8'><\/script><\/p>\n<p>According to Buterin, the UST collapse drew increased attention to DeFi financial mechanisms and cryptographic models promising higher yields for users. He stressed that he welcomes this, but does not agree that all stablecoins are painted with the same brush.<\/p>\n<blockquote class='wp-block-quote is-layout-flow wp-block-quote-is-layout-flow'>\n<p>\u201cWe don&#8217;t need <span data-descr='active investment propaganda' class='old_tooltip'>boosterism<\/span> or excessive pessimism toward stablecoins, but rather a return to principled thinking,\u201d he wrote.<\/p>\n<\/blockquote>\n<p>The Ethereum founder said that the resilience of a \u201cstablecoin\u201d can be assessed with two thought experiments.<\/p>\n<p>In his view, the first question to answer is whether a stablecoin can safely \u201cwind down\u201d to zero for users. He explained that if activity on the project&#8217;s markets falls \u201calmost to zero,\u201d holders should be able to extract fair value from their investment.<\/p>\n<p>Buterin cited UST as an example of an asset that fails this test. The reason: the stablecoin&#8217;s collateral structure tied to LUNA&#8217;s pricing. In his words, the latter must support its price and user demand, otherwise the project faces collapse.<\/p>\n<blockquote class='wp-block-quote is-layout-flow wp-block-quote-is-layout-flow'>\n<p>\u201cFirst the price of the collateral asset falls. Then the shock is transmitted to the stablecoin itself. The system tries to support demand for the stablecoin by issuing more collateral. Because trust in the system is low and buyers are few, the price of the collateral falls quickly. When the price of the latter is close to zero, the stablecoin collapses,\u201d he explained.<\/p>\n<\/blockquote>\n<p>Buterin stressed that such UST-like assets could pass the thought experiment if demand declines slowly. However, such a scenario is \u201cextremely unlikely.\u201d<\/p>\n<figure class='wp-block-image size-full'><img loading='lazy' decoding='async' width='740' height='630' src='https:\/\/u1f987.com\/wp-content\/uploads\/1-666.png' alt='Vitalik Buterin lists signs of resilient algorithmic stablecoins' class='wp-image-174267' srcset='https:\/\/u1f987.com\/wp-content\/uploads\/1-666.png 740w, https:\/\/u1f987.com\/wp-content\/uploads\/1-666-300x255.png 300w' sizes='auto, (max-width: 740px) 100vw, 740px' \/><figcaption>Data: <a href='https:\/\/vitalik.eth.limo\/general\/2022\/05\/25\/stable.html#analysis'>\u0431\u043b\u043e\u0433 \u0411\u0443\u0442\u0435\u0440\u0438\u043d\u0430<\/a>. <\/figcaption><\/figure>\n<p>As a stablecoin that passes the test, Buterin named RAI from Reflexer Labs. It operates on a DAI-like scheme and is an overcollateralized ETH-stablecoin.<\/p>\n<blockquote class='wp-block-quote is-layout-flow wp-block-quote-is-layout-flow'>\n<p>\u201cThe security of RAI depends on the external asset outside the stablecoin system (ETH), so RAI is much easier to unwind safely,\u201d he noted.<\/p>\n<\/blockquote>\n<p>According to Buterin, the second question that would help assess a stablecoin&#8217;s resilience is what happens if it is pegged to an index that grows 20% per year.<\/p>\n<p>In such a scenario, the project behind the stablecoin should be able to set a negative interest rate, otherwise it will become a Ponzi scheme, the Ethereum founder noted.<\/p>\n<blockquote class='wp-block-quote is-layout-flow wp-block-quote-is-layout-flow'>\n<p>\u201cFor a stablecoin that tries to track such an index, there are two possible outcomes. It charges holders a negative interest rate, effectively offsetting growth, and it becomes a Ponzi, delivering holders a spectacular return for a period,\u201d he wrote.<\/p>\n<\/blockquote>\n<p>Buterin stressed that negative interest rates can be implemented in RAI. That capability was not available in UST.<\/p>\n<p>That said, he added that meeting this condition does not make the asset \u201csafe.\u201d<\/p>\n<blockquote class='wp-block-quote is-layout-flow wp-block-quote-is-layout-flow'>\n<p>\u201cIt can still be unstable for other reasons (for example, insufficient collateralization), have bugs or governance-related vulnerabilities.\u201d<\/p>\n<\/blockquote>\n<p>Earlier, Tether&#8217;s chief technology officer Paolo Ardoino <a href=\"https:\/\/u1f987.com\/en\/news\/tether-cto-labels-terrausd-a-poorly-designed-product\">described TerraUSD as a poorly designed product<\/a>.<\/p>\n<p>Follow ForkLog&#8217;s Bitcoin news on our <a href='\/\/telegram.me\/forklog' target='\u201c_blank\u201d' rel='\u201cnofollow\u201d noopener'>Telegram<\/a> \u2014 crypto news, rates and analysis.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Despite the collapse of TerraUSD (UST) and the market&#8217;s &#8216;multitude of imperfect&#8217; stablecoins, the industry should not abandon projects in this category, says Ethereum founder Vitalik Buterin.<\/p>\n","protected":false},"author":1,"featured_media":62096,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"1","news_style_id":"1","cryptorium_level":"","_short_excerpt_text":"","creation_source":"","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[3],"tags":[1138,807,200],"class_list":["post-62095","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news-and-analysis","tag-opinions","tag-stablecoins","tag-vitalik-buterin"],"aioseo_notices":[],"amp_enabled":true,"views":"25","promo_type":"1","layout_type":"1","short_excerpt":"","is_update":"","_links":{"self":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/62095","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/comments?post=62095"}],"version-history":[{"count":1,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/62095\/revisions"}],"predecessor-version":[{"id":62097,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/62095\/revisions\/62097"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/media\/62096"}],"wp:attachment":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/media?parent=62095"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/categories?post=62095"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/tags?post=62095"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}