Sonic tests algorithmic stablecoin with 23% APR amid Terra-Luna risks

Sonic (CRYPTO:SONIC) blockchain is developing an algorithmic stablecoin offering up to 23% annual percentage rate (APR), reigniting debates about risks similar to Terra’s $40 billion collapse in 2022.

“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 team for a full release,” the project’s co-founder Andre Cronje, who also founded Yearn.finance, revealed in a March 22 X post about the yield structure. 

“Pretty sure our team cracked algo stable coins today, but previous cycle gave me so much PTSD not sure if we should implement,” Cronje acknowledged, noting lingering concerns about algorithmic stablecoins after the Terra-Luna cycle.

Algorithmic stablecoins rely on code-based mechanisms to maintain price stability, contrasting with fiat-backed alternatives.

Terra’s algorithmic stablecoin TerraUSD (CRYPTO:UST) collapsed in May 2022 after losing its dollar peg, wiping out tens of billions in value and triggering a prolonged crypto winter.

Sonic’s implementation comes as regulators like the European Union’s Markets in Crypto-Assets Regulation (MiCA) explicitly prohibit algorithmic stablecoins to prevent similar failures.

Despite this, projects continue exploring the model, with Sonic emphasising its blockchain’s speed—claiming 720ms transaction finality.

The Terra collapse also left lasting impacts on crypto markets.

LUNA, Terra’s sister token, remains traded despite a 98% drop from its $120 peak, with over $21 million in recent daily volume.

Sonic’s move highlights ongoing tensions between innovation and risk in decentralised finance, particularly as algorithmic stablecoins face heightened scrutiny post-Terra.