Sonic Labs scraps its algorithmic stablecoin and pivots to a dirham-based alternative, aligning with UAE’s digital currency rollout in late 2025.
Instead of launching an algorithmic stablecoin that is tethered to the United States dollar, Sonic Labs has decided to produce an alternative that is denominated in United Arab Emirates dirhams to replace the original.
On March 22, Andre Cronje, the co-founder of Sonic Labs, stated that the business was working on an algorithmic stablecoin that was pegged to the United States dollar and had an annual percentage rate (APR) of up to 23 percent.
One week later, however, the company decided to change its strategy. According to a post that Cronje made on March 28th, he stated, “We will no longer be releasing a USD-based algorithmic stable coin.”
We plan to issue a mathematically bound numerical Dirham, settled and denominated in USD, which is entirely different from a USD-based algorithmic stablecoin. This issue is completely unconnected to the previous statement.
Recently, the United Arab Emirates (UAE) announced that it would introduce its digital dirham central bank digital currency (CBDC) in the fourth quarter of 2025. This adjustment in approach comes shortly after the announcement.
The governor of the Central Bank of the United Arab Emirates, Khaled Mohamed Balama, stated that the blockchain-based dirham has the potential to improve financial stability and assist in the fight against financial crime.
According to a story from the Khaleej Times, the digital money will share the same level of acceptance as its physical equivalent across all payment methods. The turnaround comes as a result of considerable criticism of Sonic’s initial proposal to develop an algorithmic stablecoin.
The concept of algorithmic stablecoins has caused alarm throughout the cryptocurrency industry ever since the Terra ecosystem collapsed in 2022. Cronje has previously stated that he experienced post-traumatic stress disorder (PTSD) due to algorithmic stablecoin cycles.
A collapse of the $40 billion Terra ecosystem occurred in May of 2022, resulting in the loss of tens of billions of dollars’ worth of wealth in a comparatively short period of time. Prior to the failure of Anchor Protocol, TerraUSD (UST), the algorithmic stablecoin that Terra uses, had been consistently generating an annual percentage yield (APY) of more than twenty percent.
During the time that UST was losing its dollar peg and falling to a low of approximately $0.30, Do Kwon, the co-founder of Terraform Labs, took to X (which was once known as Twitter) to outline his rescue plan. At the same time, the value of sister token LUNA, which was formerly at the top of the list of the top 10 crypto projects based on market capitalization, declined by more than 98% to $0.84.
At the beginning of April 2022, the price of LUNA was in excess of $120.The failure of the algorithmic stablecoin issuer sent shockwaves across the cryptocurrencies’ investor community as well as through the legislative community.
It is the intention of the Markets in Crypto-Assets Regulation (MiCA) bill of the European Union to restrict algorithmic stablecoins to prevent another collapse similar to that of Terra.
According to David Pakman, managing partner at CoinFund, stablecoins are increasingly being utilized for smaller, everyday payments rather than giant transfers. This trend is becoming more common.
As Pakman stated on March 27 during the Chainreaction live broadcast on X, “We’ve seen a significant decrease in the size of each stablecoin transaction, which points to the fact that they are being used more as payments and less for large transfers.”
