ShapeShift: “algorithmic stablecoins will help reduce cryptocurrency market volatility”

According to research by ShapeShift, the boom in the decentralized finance (DeFi) industry has led to the development of algorithmic stablecoins that will help reduce market volatility.

In the report, ShapeShift analysts note that due to their properties, algorithmic stablecoins automatically adjust their capitalization and other important parameters. This can help reduce volatility in the cryptocurrency market.

“The basic idea is that if the stablecoin protocol can issue or burn tokens depending on market conditions, then this will ensure that the value of the stablecoin is close to the underlying asset. It also makes him less dependent on the management company and reduces the need for collateral, ”said Kent Barton, head of research and development at ShapeShift.

In their research, analysts cite RAI, FRAX and FEI stablecoins as examples. These are fairly small projects. Thus, the total capitalization of the FEI, which is backed by ETH, is only $ 350 million. FRAX tokens are backed by USDC, and the collateral is always less than the number of tokens issued.

Barton notes that algorithmic stablecoins are still in the early stages of development, and their success is far from guaranteed. And yet, these assets can really positively affect the entire cryptocurrency market and reduce its volatility, which will change the attitude towards cryptocurrencies on the part of regulators.

Earlier, the US Department of Justice announced an investigation into the activities of Tether, which is behind the largest stablecoin on the market – USDT. The U.S. Attorney’s Office is investigating whether Tether executives were hiding from banks that their banking operations were related to cryptocurrencies.

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