A strong initial backing is forming for a proposal to establish a native algorithmic stablecoin for Polkadot, solely powered by DOT tokens.
On Sunday, Bryan Chen, co-founder and CTO of Polkadot’s Acala chain, put forward a plan to create a native stablecoin for the Polkadot ecosystem. This algorithmic stablecoin will be exclusively backed by Polkadot (DOT) tokens and will carry the pUSD ticker.
The envisioned stablecoin will utilize the Honzon decentralized stablecoin and collateralized debt position protocol on the Acala network, aiming to decrease or eliminate reliance on Tether’s USDt (USDT) and Circle’s USDC (USDC) stablecoins.
As of now, over 75% of the votes support the proposal, with more than 24 days remaining for voting. So far, over $5.6 million worth of DOT has been used to cast votes, which translates to more than 1.4 million DOT priced at approximately $3.90.
Related: Stablecoins: Depegging, fraudsters, and decentralization
The stablecoin’s design
The pUSD algorithmic stablecoin is proposed as an overcollateralized debt token supported by DOT. It would feature an optional savings module, enabling holders to lock their stablecoins while earning interest from stability fees.
Chen highlights that the aim of this initiative is to bolster Polkadot’s ecosystem by implementing a native stablecoin. “Polkadot Hub needs a DOT-backed stablecoin because of demand; otherwise, we risk losing benefits, liquidity, and/or security,” the proposal states.
This decentralized algorithmic stablecoin aims to mirror the value of a fiat currency without relying on centralized collateral held by external parties. Instead, it will utilize digital assets stored on-chain, governed by smart contracts, with the price peg upheld through economically incentivized mechanisms coded within those contracts.
Related: Sonic Labs replaces algorithmic USD stablecoin with UAE dirham alternative
Algorithmic stablecoins remain controversial
The popularity of algorithmic stablecoins has waned following the notorious collapse of Terra’s stablecoin, TerraUSD (UST), which led to a severe downturn in its ecosystem. Nonetheless, this asset class still garners significant interest due to its enhanced decentralization.
This decentralization suggests a design that is more permissionless (less controllable). Ki Young Ju, CEO of the crypto analytics firm CryptoQuant, remarked in early May that algorithmic stablecoins may pave the way for the emergence of “dark stablecoins” that avoid compliance with regulations or sanctioned enforcement.
Magazine: Crypto aimed to disrupt banks, but now it’s emerging as part of the stablecoin conflict
