Vitalik Buterin proposed ways to maintain the viability of algorithmic stablecoins

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Ethereum co-founder Vitalik Buterin proposed two options for maintaining the viability of algorithmic stablecoins, which will allowto avoid the failure that happened with Terra.

After the sensational collapse of the Terra project, the UST stablecoin and the LUNA coin, which led to multibillion-dollar losses of users, Buterin expressed hope that now users will begin tobe more scrupulous when choosing cryptocurrency projects to invest in.A lot of algorithmic stablecoins that are fundamentally flawed and doomed to fail.However, there are others that can theoretically "survive" but are still very risky.Despite the current situation, it makes no sense to completely abandon algorithmic stablecoins, writesButerin.

As a "perfect example" of an automated stablecoin, Buterin named the Ether-backed crypto asset RAI.It is not tied to the value of fiat currency and relies only on algorithms that automatically set the interest rate for proportional price movements.Buterin said that even if users' confidence in the stablecoin weakens, they will be able toIf the value of a stablecoin drops to near zero, users should be able to extract liquidity from the asset.

Buterin stressed that UST does not meet this parameter due to its structure, in which LUNA, which he called a "volumetric coin" (volcoin), must maintain its rate and user demand in order to maintain its peg to the US dollar.Otherwise, it will be almost impossible to avoid the collapse of both crypto assets.

"Firstly, the rate of such a volcoin falls, then the stablecoin begins to "shake" as well.The system is trying to support the demand for the stablecoin by issuing more "volumetric coins".With low trust in the system, there are few buyers, so the volcoin rate is falling rapidly.As soon as it approaches zero, the stablecoin also collapses," writesButerin.

Given that RAI is backed by Ether, the loss of trust in the stablecoin will not have much impact on ETH, which will reduce theAt the same time, users will still be able toexchange RAI for ETH held in vaults that support the stablecoin and its lending mechanism.

Buterin also thinks it's critical for algorithmic stablecoins to be able to implement a negative interest rate, while tracking "a basket of assets, a consumer price index, or some complex formula" that would grow by 20% per year.Buterin believes that in this case, a negative interest rate should be charged to counterbalance users to neutralize the growth rate at the US dollar peg built into the index.Otherwise, the project will bring a lot of profit only for some time, until at one pointit "will not crash down." 

In conclusion, Buterin noted that even the implementation of the above scenarios will not makeAlgorithmic stablecoins are completely secure, and there are other factors to consider, such as bugs or vulnerabilities in governance.

In January, Vitalik Buterin proposed a new concept of non-fungible tokens (NFTs), which will beHe described the concept as "soulbound," which means "soulbound."the impossibility of disidentifying the NFT from its original owner.