On December 2, 2022, Charles Hoskinson, the founder of Cardano, mentioned employing a deflationary cryptocurrency, such as Bitcoin or Cardano, to collateralize as a substitute for the national currency. If this idea can be executed successfully, it will wean the country and the States off of fiat money.
The concept of algorithmic stablecoins is how we get nation states off of fiat currencies. It's the gold standard of the digital age. Use a deflationary cryptocurrency like bitcoin or ada to collateralize a stable coin that's use as a national currency.
— Charles Hoskinson (@IOHK_Charles) December 2, 2022
Algorithmic Stablecoin is a brand-new stablecoin category on the blockchain. It is dependent on an algorithm that links the issued stable coin to an asset backing up its value. It represents the pinnacle of the digital era.
Since most algorithmic stablecoins lost their peg during the bear market, many people have questioned if this can even be feasible. They have lost their value as a result of the decrease in value of the purportedly deflationary assets supporting the released coin. Nations will adopt digital currencies if this concept eventually becomes successful.
Many people noted that Bitcoin and Ada are volatile and that their volatility can be attributed to a lack of adoption and liquidity. Collateralizing with tangible assets rather than speculative digital currencies like Bitcoin or Cardano would seem to make more sense.
According to studies of prior unsuccessful schemes, collateralizing stable assets with highly volatile commodities, cryptocurrencies, and the like will not be a viable idea. This appears to be Terra Luna’s strategy for the algorithmic stablecoin, UST, which eventually lost its dollar peg and fell to a low of roughly $0.30. This depegging led to a rapid collapse that hurt the entire cryptocurrency market.
People’s fear and hostility are unmistakably a result of the failed initiatives, as well as the consequences and scars they left behind. The following event might be much more serious than the first. If Bitcoin or Cardano remains unstable, achieving stability on this issue would be challenging, that is if it continues to be volatile.
Additionally, if liquidity can be guaranteed, there won’t be any hesitation in implementing this plan. The corporation can be sure to have enough liquidity on hand to distribute to individuals who want to redeem the digital currencies as they are encoded.
As innovations that support cryptocurrencies continue to emerge, there is a push for the usage of digital currencies because there is a high possibility that one of the many new concepts that are developed every day will succeed and be very advantageous.
