Sonic Labs has decided against developing a dollar-pegged algorithmic stablecoin and will instead focus on a new stablecoin based on the UAE Dirham.
Shift from Dollar to UAE Dirham
Sonic Labs co-founder Andre Cronje announced the platform's decision to forgo its original plans for a dollar-based stablecoin. The company will now focus on developing a UAE Dirham-denominated stablecoin. This development comes after the UAE announced the launch of its digital dirham in the fourth quarter of 2025. Khaled Mohamed Balama, Governor of the Central Bank of the UAE, indicated that the digital dirham will be blockchain-based, enhancing financial stability and combating financial crime.
Reasons for the Strategy Change
Initially, Sonic Labs had planned a high-yield algorithmic stablecoin offering returns of up to 23% per annum. However, Andre Cronje cited the crypto community's negative sentiment towards such models, particularly following the collapse of the Terra platform in 2022, as a reason for the shift. Cronje also admitted to stress related to previous cycles of deploying algorithmic stablecoins.
Lessons from Terra's Collapse
The collapse of the Terra ecosystem in 2022 resulted in significant financial loss as TerraUSD lost its peg to the dollar, and its value dropped to around $0.30. The Anchor Protocol had offered lucrative yields over 20% before the collapse. Terra's native token, LUNA, also collapsed, losing 98% of its value. The incident highlighted the risks associated with algorithmic stablecoins, prompting new EU regulations aimed at preventing similar failures. Sonic Labs' strategy shift reflects a cautious approach in response to these lessons.
Sonic Labs' decision to move away from an algorithmic stablecoin model in favor of a UAE Dirham-based alternative showcases a calculated response to current market conditions and past lessons. This move may promote confidence and stability in their offerings, addressing potential risks highlighted by Terra's downfall.
