Sonic Labs ditches algorithmic stablecoin in favor of UAE dirham alternative

Source Cryptopolitan

Sonic Labs is ditching its algorithmic stablecoin in favor of a UAE dirham alternative, its co-founder, Andre Cronje, has confirmed. The platform had initially harboured plans to launch a US dollar pegged algorithmic stablecoin, but has now opted to instead develop an alternative that will be denominated in the United Arab Emirates dirham.

The Sonic Labs co-founder had initially confirmed that the company was working on the dollar-pegged stablecoin, noting that the token would include an annual percentage rate (APR) of up to 23%. “POC looks good. Yielding > 200% APR @ 10m tvl, around 23.5% APR @ 100m, steady at around 4.9% at 1bn+. Will scale up and get the team for a full release,” Cronje said at the time.

However, a week later, Cronje announced a change in the course, noting that the company would no longer be going ahead with the move, while announcing a different course of action.

Sonic Labs announces shift to UAE dirham alternative

In an X post on Friday, the Sonic Labs co-founder gave insight into the new kind of stablecoin the company is looking into.

“We will no longer be releasing a USD-based algorithmic stablecoin. Completely unrelated, we will be releasing a mathematically bound numerical Dirham which is settled and denominated in USD, which is definitely not a USD-based algorithmic stablecoin,” his post on X read.

The shift in development is coming after the United Arab Emirates (UAE) announced the launch of its digital dirham central bank digital currency (CBDC) in the fourth quarter of 2025. Governor of the Central Bank of the UAE, Khaled Mohamed Balama, mentioned that the dirham will be based on a blockchain, enhance financial stability, and help combat financial crime. According to a report by Khaleej Times, the digital currency will be accepted alongside the physical currency across all payment channels.

It’s also worth mentioning that there have been several criticisms from the crypto community over Sonic Labs’ plans to launch the algorithmic stablecoin. The model has been frowned upon in the crypto community since the collapse of the Terra ecosystem in 2022.

Cronje also admitted to experiencing Post-traumatic stress disorder (PTSD) related to algorithmic stablecoin. “Pretty sure our team cracked algo stablecoins today, but the previous cycle gave me so much PTSD, not sure if we should implement it,” Cronje said in a previous post.

Terra ecosystem collapse and the need for caution

The Terra ecosystem collapsed in 2022, erasing tens of billions of dollars in days. The platform’s algorithmic stablecoin, TerraUSD (UST), had been yielding over 20% worth of annual percentage yield (APY) on Anchor Protocol before the collapse. After the UST lost its peg, the token crashed seriously, stopping at around $0.30 at one point.

After the depeg, Terraform Labs co-founder Do Kwon took to X to share his rescue plan while urging investors to be calm. During the same period, the platform’s native token, LUNA, which was in the top 10 crypto projects according to market capitalization, also lost 98% of its value, dropping to $0.84. As of early April 2022, the LUNA token had been trading at around $120. The collapse of the algorithmic stablecoin company sent shockwaves among investors, other firms, and lawmakers.

Meanwhile, the European Union has come up with its Markets in Crypto Assets (MiCA) regulation bill that will prohibit algorithmic stablecoins to avoid another catastrophic failure like Terra. CoinFund managing partner David Pakman has noted that stablecoins are now increasingly used for smaller and everyday payments, instead of large transfers. “We’ve seen a significant decrease in the size of each stablecoin transaction, which points to the fact that they are being used more as payments and less for large transfers,” Pakman said.

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