The Heaven and Hell of Algorithmic Stablecoins: Can the Gamble of 2025 Succeed?

It's 2025, and algorithmic stablecoins are back. To be honest, I am skeptical about these things. After all, just a few years ago, UST and LUNA collapsed in a shocking manner, leaving countless people with nothing. But people really have short memories, or rather, human nature is always driven by profit, repeatedly jumping into the same river.

I once held UST and experienced that bloodbath; even now, thinking back on it still pains my heart. The scene from that time is still vivid in my mind: within a day, its value evaporated by 98%, turning from a "stablecoin" into an "unstable coin"; it was like a nightmare.

Algorithmic Stablecoin: A Beautiful Trap?

The concept of Algorithmic Stablecoin sounds very appealing: it does not require real US dollars as collateral, is completely decentralized, and maintains a 1 dollar peg by automatically adjusting supply and demand through smart contracts. When the price exceeds 1 dollar, the system issues more tokens to lower the price; when the price falls below 1 dollar, the system withdraws tokens to increase scarcity.

The theory is beautiful, but what about reality? When people start to panic sell, this system will fall into a death spiral. Remember that Anchor Protocol? It promised a 20% "guaranteed profit" annual return, but ended up being the starting point for the UST collapse. A typical Ponzi scheme.

Lessons from the Past: The Fragility of Collective Trust

The biggest weakness of Algorithmic Stablecoins is their reliance on "collective trust." Once this trust collapses, the entire system will spiral downwards. Not only Terra, but others like Basis and Empty Set Dollar have also fallen, as there are no real anti-fragile mechanisms to cope with extreme situations.

This inevitably makes me wonder: Is it really possible to rely entirely on algorithms to maintain stability without relying on actual assets? Or is this just a fantasy?

Innovation in 2025: Old Wine in New Bottles?

Now these new projects claim to have learned their lessons, adopting a more conservative approach, even introducing some actual assets as reserves to create a hybrid model. They also place greater emphasis on transparency, providing real-time audits and risk documentation.

But what makes me break out in a cold sweat is that these are all nice words said when the economic environment is relatively stable. Once the market panics, can the so-called "dynamic supply control mechanism" withstand the pressure? Even for those new stars that are being touted like Frax, USDe, and Gyroscope, I can't fully buy into them.

The Appeal and Risks of Algorithmic Stablecoins

Why are people still flocking to Algorithmic Stablecoins? The answer is simple: the allure of a completely decentralized ideal. As the regulatory environment becomes increasingly stringent, the desire to break free from the control of central institutions is growing stronger.

But the reality is harsh. A good algorithm does not equal a good product; without a strong ecosystem, deep liquidity, and practical applications, stability is just talk.

Personal Reflection: Is it Worth Investing?

Every time I see the term "Algorithmic Stablecoin," the horrific scene of the UST crash comes to mind. But that being said, if we only look at past failures forever, we will never progress.

Some may say I'm too pessimistic, but having been in the crypto market for a long time, I've seen too many "revolutionary innovations" end up in a mess. These projects promise stability again, but is it really different this time?

To be honest, I still wouldn't put a large amount of money into Algorithmic Stablecoins. These projects still feel like walking a tightrope, only now they are tied with a somewhat unreliable safety rope. Earning might feel good for a moment, but losing could hurt for a lifetime.

There is no free lunch in this world; while pursuing high returns, risks always lurk in the shadows. Can Algorithmic Stablecoins prove themselves? Let's wait and see, but never fully entrust your fate to them.