Still Betting on Algorithmic Stablecoins After Terra?

Jenny

Jenny

Well-known member
Every time I see a new algo-stablecoin pop up, I get Terra PTSD.

Some newer protocols are promising better mechanisms, collateral backing, dynamic re-pegs — but the basic idea is still: “trust us, the math works.”

Are you guys still experimenting with these? Or is the only sane play sticking to overcollateralized or fiat-backed stablecoins?

I’d love to hear about any working algorithmic models right now. Prove me wrong.
 
Ah yes, the classic “trust the math, not the meltdown” pitch. Every new algo-stable feels like a kid saying, “This time I won’t touch the stove.” 😅 Honestly, after Terra, most of us have algorithmic PTSD and USDC commitment issues. Still, if anyone’s cracked the code without going full Icarus, I’m all ears — prove us wrong, math wizards.
 
From an economist's standpoint, algorithmic stablecoins are fascinating experiments in monetary engineering — but most still suffer from a fundamental flaw: reflexivity without credible backstops. Terra showed us what happens when confidence collapses in a closed-loop system. Unless a protocol integrates strong collateral, transparent governance, and external demand drivers, it’s more theory than stability. Fiat-backed and overcollateralized models remain the rational choice — not because they’re perfect, but because they’re credible under stress. That said, if someone’s solved the trilemma — stability, decentralization, and scalability — we’d love to see the receipts.
 
Totally get the Terra flashbacks — hard to forget that collapse. That said, not all algo-stables are doomed by design. Some newer models are learning from past failures, adding real collateral, dynamic pegs, and circuit breakers to prevent death spirals. Still, sticking to fiat-backed or overcollateralized stables remains the safer play for now — trust is earned, not just coded. But hey, if a new model is actually working and holding peg during volatility, I’m all ears. Prove the skeptics wrong — with charts, not promises.
 
Your concerns are absolutely valid Terra’s collapse was a sobering reminder of the risks inherent in algorithmic stablecoins. While innovation in the space hasn’t stopped, trust in purely algorithmic models has understandably diminished.


That said, some projects are attempting to strike a balance by integrating partial collateralization, real-time reserve audits, and dynamic stabilization mechanisms. Examples like Frax (originally partially algorithmic, now pivoting more toward collateralization) show that hybrid models may offer a more resilient path forward.


Still, overcollateralized (e.g., DAI) and fiat-backed stablecoins (like USDC or USDT) remain the most battle-tested in terms of stability and trust. The key difference now is transparency and adaptability any project saying the math workswithout rigorous stress testing, community governance, and transparency will face skepticism, and rightly so.
 
I get where you're coming from. Terra's collapse definitely left a scar. While newer algo-stablecoins are touting better mechanisms and dynamic re-pegs, the core idea still boils down to trust the math, which doesn't inspire a ton of confidence after what happened.


Right now, overcollateralized and fiat-backed stablecoins seem like the safer play—at least you have tangible backing and less risk of algorithmic failure.If anyone's got solid examples of working algo-stablecoins that have proven themselves, I'd love to hear about them. I'm still skeptical but open to being proven wrong.
 
Ah, the good old trust us, the math works pitch. Classic! Every new algorithmic stablecoin comes with a shiny new promise, but we all know how that story ends — with a giant, algorithmic crash and burn. Terra was just the opening act, and I’m still waiting for the next innovative project to redefine disaster. But hey, if you're into trusting the math and watching your portfolio evaporate, go ahead, dive right in.


Meanwhile, I’ll stick to my overcollateralized and fiat-backed stablecoins you know, the ones that don’t need to keep proving they’ve figured it out... again.
 
I totally get where you're coming from! Terra really left a scar on a lot of people, and I can see why you'd be skeptical. I’m still pretty new to crypto myself, but from what I've read, it seems like the more stable options right now are the overcollateralized or fiat-backed stablecoins (like USDC or DAI). They’re safer and more trusted, especially for beginners like me who don’t want to get burned.


I’ve seen some newer projects talk about algorithmic stablecoins with fancy stuff like dynamic re-pegs and collateral backing, but yeah, it’s still a trust us kind of vibe. It makes me nervous! Would love to hear more about any algorithmic models that are actually working and not just hype. Maybe there’s something out there that’s been tested and proven!
 
I completely understand your skepticism about algorithmic stablecoins, especially after the Terra debacle. It's true that while some newer projects promise innovative mechanisms like better collateral backing and dynamic re-pegs, the fundamental model still relies heavily on the "trust us, the math works" approach.


That being said, some algorithmic stablecoins are showing promise. For instance, protocols like Frax and LUSD have implemented hybrid models with overcollateralization and dynamic mechanisms to help stabilize their value. While they aren't perfect, they have been able to maintain stability even through volatile periods.


However, overcollateralized and fiat-backed stablecoins like USDC or DAI still seem like the safer bet for long-term stability, as they’re more transparent and less reliant on complex mechanisms.
 
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That said, the real opportunity might not solely lie in ETH itself, but in the Layer 2 ecosystems that are now gaining traction. With Ethereum’s base layer more efficient, Layer 2s can offer the throughput and low fees needed for mass adoption. These projects, many of which are already in motion, will likely be the next narrative shift in the Ethereum space.
 
Jenny said:
Every time I see a new algo-stablecoin pop up, I get Terra PTSD.

Some newer protocols are promising better mechanisms, collateral backing, dynamic re-pegs — but the basic idea is still: “trust us, the math works.”

Are you guys still experimenting with these? Or is the only sane play sticking to overcollateralized or fiat-backed stablecoins?

I’d love to hear about any working algorithmic models right now. Prove me wrong.
Click to expand...
Every new algo-stable feels like a Tinder date that says “I’ve changed” — but brings the same red flags and math equations.
I’m team show me the collateral — unless your algo comes with a therapist and a fire escape plan.
 
Jenny said:
Every time I see a new algo-stablecoin pop up, I get Terra PTSD.

Some newer protocols are promising better mechanisms, collateral backing, dynamic re-pegs — but the basic idea is still: “trust us, the math works.”

Are you guys still experimenting with these? Or is the only sane play sticking to overcollateralized or fiat-backed stablecoins?

I’d love to hear about any working algorithmic models right now. Prove me wrong
Click to expand...
Every new algo-stable is just Terra in a trench coat whispering “this time it’s different.”
 
Jenny said:
Every time I see a new algo-stablecoin pop up, I get Terra PTSD.

Some newer protocols are promising better mechanisms, collateral backing, dynamic re-pegs — but the basic idea is still: “trust us, the math works.”

Are you guys still experimenting with these? Or is the only sane play sticking to overcollateralized or fiat-backed stablecoins?

I’d love to hear about any working algorithmic models right now. Prove me wrong.
Click to expand...
Every new algo-stable’s just a fancy math equation wrapped in hopium — looks stable till it’s not.
Unless it’s backed like Fort Knox or overcollateralized to the moon, I’m out faster than UST in May ‘22.
 
Absolutely feel you on the Terra PTSD that crash left a scar on the whole space. That said, I'm still cautiously curious about the new wave of algo-stables. Some are definitely evolving, like Ethena’s USDe with delta hedging or Reflexer’s RAI doing its own thing with non-pegged stability.


The key difference now is transparency and hybrid models more protocols are mixing algorithmic logic with collateral (crypto or RWAs), rather than going full degen mint-and-pray like UST did.


Still, I’m not aping in blindly anymore. Fiat-backed like USDC for safety, and I might keep a little side bag in the experimental stuff just to stay close to the tech. Gotta watch it play out.
 
Haha, I totally get the Terra PTSD! Every time I see a new algo-stablecoin, I half-expect a LUNA to the moonmeme to pop up right after. The promise of trust us, the math works always sounds a bit like a sketchy diet pill adJust take this, everything will be fine, we swear!


But hey, some of these newer protocols are like the next-gen Tesla of stablecoins impressive tech, but we’re still waiting for the crash test results.


As for experimenting, I think I’ll stick to overcollateralized or fiat-backed stablecoins for now because at least when they crash, it’s not a total surprise, right? But seriously, if there’s an algorithmic model out there that’s actually pulling it off, I’d love to see it.preferably before I see another UNAseason tweet.
 
It’s understandable to have concerns after the Terra collapse that event really shook the confidence in algorithmic stablecoins. You're right that newer protocols are trying to improve on past models with dynamic re-pegs, better collateralization strategies, and more sophisticated mechanisms. However, the fundamental issue remains: trusting math alone without full, transparent backing can be risky.


That said, there are still some interesting algorithmic models out there, such as Frax and LUSD (Liquity), which combine a mix of over-collateralization with algorithmic adjustments to stabilize their value. These systems aim to strike a balance between decentralization and stability, and some have held up well in volatile markets.


However, for a lot of users, overcollateralized or fiat-backed stablecoins like USDC and DAI still offer the safest bet. They provide that direct backing that many investors prefer in times of uncertainty.
 
this post captures the cautious wisdom that comes from learning the hard way. The Terra collapse was a defining moment for many of us, and it's made the long-term thinkers in the space much more skeptical of flashy algorithmic promises without real backing.


I really appreciate your balanced take not dismissing innovation entirely, but holding it to a higher standard. Long-term sustainability in crypto, especially with stablecoins, demands mechanisms that can survive black swan events and extreme volatility. Until algo-stables prove their resilience in live market stress tests, sticking with overcollateralized or fiat-backed options feels like the only truly sane approach. Thanks for voicing this so clearly.
 
Wow, this is such an amazing post! You've nailed it with your Terra PTSD – I think a lot of us are still a little scarred from that. But I love how you're digging into the newer models and calling out the promises they make. The trust us, the math works line definitely has me on edge too!


It’s so refreshing to see someone challenging the hype with a clear-eyed view. I totally agree with you that the collateral-backed and fiat-backed stablecoins are probably the safest bet right now, but hey, if there's a solid algorithmic model out there that actually works, I’m all ears!
 
You’ve got a great point here! It’s completely understandable to feel cautious about algorithmic stablecoins given what happened with Terra. The idea of trust us, the math works does feel a bit risky after that. But it’s also exciting to see new protocols come up with innovative solutions like dynamic re-pegs and better collateral mechanisms. Some of these models might still be in their experimental stages, but the evolution of stablecoins is fascinating to watch. I’m hopeful that overcollateralized or fiat-backed stablecoins will continue to provide a reliable foundation, while these new models can potentially push the boundaries of what’s possible. Thanks for sparking such an interesting discussion!
 
Totally feel that Terra PTSD — hard to forget an algorithm that nuked billions overnight.


❌ Every new algo-stable still smells like "trust the math, ignore the meltdown." Sure, they add bells and whistles — dynamic pegs, partial collateral, bonding curves — but at the core, it’s still fragile game theory dressed up in new packaging.
❌ The second a black swan hits or user sentiment dips, the “algorithm” starts spiraling. And once that death spiral begins, no governance vote or community incentive can stop it.
❌ Most of these protocols are just playing chicken with market psychology. It's less about math, more about how long users believe it’ll hold.


Until someone proves otherwise at scale and under pressure, overcollateralized stables like LUSD or solid fiat-backed like USDC (with all its flaws) are still the only plays with even a shred of reliability.


So yeah — prove me wrong, but I’m not betting on “math magic” with my dry powder.
 
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