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The Sonic blockchain is moving ahead with plans to launch its yield-generating algorithmic stablecoin, despite ongoing concerns about risks reminiscent of the Terra-Luna crash, which triggered the longest crypto winter in the industry's history.
Unlike fiat-backed stablecoins that are directly pegged to traditional currency reserves, algorithmic stablecoins rely on code-driven mechanisms to maintain price stability.
Sonic is developing an algorithmic stablecoin promising an annual percentage rate (APR) of up to 23%, according to Andre Cronje, co-founder of Sonic Labs and the creator of Yearn. finance.
In a March 22 post on X, Cronje shared an update:
“Proof of concept looks strong. Currently yielding over 200% APR at $10 million TVL, around 23.5% at $100 million, and stabilizing near 4.9% at $1 billion+. Planning to scale up and assemble the team for a full rollout.”
Cronje’s announcement came shortly after he revealed his struggles with PTSD from previous algorithmic stablecoin cycles:
“Pretty sure our team cracked algo stables today, but the PTSD from the last cycle makes me question if we should move forward.”
Back in May 2022, the $40 billion Terra ecosystem collapsed almost overnight. Terra’s algorithmic stablecoin, TerraUSD (UST), was offering over 20% APY on the Anchor Protocol at the time. When UST lost its dollar peg, dropping to as low as $0.30, Terraform Labs co-founder Do Kwon proposed a rescue plan on X. Meanwhile, Terra’s sister token, LUNA—once a top-10 crypto asset by market cap—plummeted from over $120 in early April to just $0.84, losing more than 98% of its value.
Sonic positions itself as the world’s fastest Ethereum Virtual Machine (EVM)-compatible blockchain, boasting true finality in just 720 milliseconds. Finality refers to the point at which a transaction becomes irreversible on the blockchain ledger. Sonic first demonstrated this speed on its testnet on September 8, 2024.
Despite the Terra crash, investors are still trading the now-defunct LUNA token. CoinMarketCap data shows LUNA remains over 98% below its all-time high of $19.54 from May 28, 2022.
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Source: CoinMarketCap
Yet, it saw over $21 million in trading volume within the past 24 hours. As noted popular technical analyst Optimus KevTron pointed out, “People are still buying it, even though it’s dead.”
The fallout from Terra’s algorithmic stablecoin failure sent shockwaves through the crypto market and attracted intense scrutiny from both investors and regulators.