Goldman Sachs note to clients & brief history of algorithmic stablecoinsAlgorithmic stablecoins in particular are vulnerable to self-fulfilling crises, as is now obvious after the decline of UST and LUNA. Regulation seems likely, in our view.
In the case of UST, the broader drawdown in digital assets may have raised investors’ subjective probabilities of the risk that LUNA’s market cap could fall below the supply of UST, such that it might be insufficient to cover all redemptions.
While stablecoins can provide a useful service within the digital asset ecosystem, current designs can be risky. More stability could be achieved through forms of government regulation and/or deeper network effects from greater non-speculative usage of the underlying protocols.
