Sonic Labs has scrapped its plans to launch a US dollar-pegged algorithmic stablecoin. Instead, the company is pivoting to a dirham-backed alternative, aligning with the UAE’s upcoming digital currency rollout.
On March 22, Sonic Labs co-founder Andre Cronje announced that the firm was working on a USD-pegged algorithmic stablecoin with an annual percentage rate (APR) of up to 23%. However, just a week later, the company reversed its decision.
Cronje clarified in a March 28 post on X:
This shift comes shortly after the UAE revealed plans to launch its digital dirham (CBDC) in late 2025.
UAE’s Digital Dirham and Financial Stability
The UAE’s central bank is preparing to introduce a blockchain-based dirham to enhance financial stability and combat financial crime. According to Khaled Mohamed Balama, governor of the Central Bank of the UAE, the digital currency will be accepted across all payment channels alongside its physical counterpart.
Why Sonic Labs Faced Backlash
Sonic’s original plan for an algorithmic stablecoin drew criticism due to the failures of past projects like TerraUSD (UST). The collapse of the $40 billion Terra ecosystem in 2022 led to massive losses for investors and triggered regulatory scrutiny.
Cronje himself admitted his reluctance to pursue algorithmic stablecoins, stating that past failures gave him “PTSD.” Despite claiming to have “cracked” the concept, he was hesitant to implement it.
Algorithmic Stablecoins Face Regulatory Barriers
The European Union’s Markets in Crypto-Assets Regulation (MiCA) now prohibits algorithmic stablecoins to prevent another Terra-like crisis. Meanwhile, the demand for stablecoins continues to shift. CoinFund managing partner David Pakman noted that stablecoins are now used more for small transactions rather than large transfers.
Conclusion
Sonic Labs’ decision to switch to a dirham-backed stablecoin aligns with global regulatory trends and the UAE’s digital currency plans. This move may help the firm navigate regulatory challenges while capitalizing on the growing adoption of blockchain-based financial systems.
