Why have we given up on algorithmic stablecoins? | Drew, Pinto | ETHTaipei 2025

[Music] All right. Hello everyone. My name is Drew. Um, I work on Pinto. I'm on the founding team of Pinto, which is something very similar to an algorithmic stable coin.

Uh, although I don't normally use that term because I think it deviates from expectations a little bit when people hear the term stable coin. Uh today I'm not going to talk about Pinto though or myself really. Instead I'm going to talk about the the more meta level of algorithmic stable coins um and why we've given up on them as an industry. Uh so the reality right now is that everyone hates algorithmic stable coins. Uh it's it's really visceral when I go around these conferences uh or in real life and tell people what I'm working on and use the word algorithmic stablecoin.

Um people people react very poorly. they get pretty tense. Maybe they start tweaking. Uh and then they like take on this defensive posture as if I'm gonna reach around and extract the value from their wallet on the spot. Uh there's just a general sense that anybody working on this uh is a scammer and is uh just here to to create a Ponzi scheme and take take value out of the system.

Uh and I think this is a real tragedy, but I understand where people are coming from. There was a lot of pain in 2021 2022 around algorithmic stable coins. People lost a lot of money. the industry lost a lot of value. Um, and there were a lot of very serious consequences.

Uh, but before before that happened and before that trauma set in, people really did believe in the mission of algorithmic stable coins. And there was a sense that this is a very important concept to be working on. And so I want to talk about how we went from this idea of algorithmic stable coins being a holy grail of crypto to sort of being this taboo that nobody wants to talk about. Um, so to better understand this trajectory, I'm just going to talk really quickly about the state of the game with stable coins on chain. Uh, stable coins are really important.

It's very easy to see that they're really important. Right now, there's $220 billion of stable coins on chain. Um, which is a pretty massive number. It's for context, that's pretty similar to the total market cap of Ethereum, which I think everyone in this room would agree is a pretty important asset class. Uh so we see that the market really values stable coins and there's no like you know theory required there.

Uh it's very much the data is onchain. And so of all of this $220 billion uh pretty much everything falls into two categories. These centralized stable coins and these decentralized stable coins. The centralized ones come with all of the existing problems of centralization that we know and love. The the problems that we all are here to to try to resolve.

Um, these ones are censorable. Uh, they require trust and they're subject to the governments. And basically all of this value is inside of these two main tokens, USDT and USDC. So basically there's two actors and one or two governments that are controlling a huge portion of the value on chain. Um, and I contend that this is a major problem.

This really sucks. This is this is not good enough. Basically, we have this incredible tech stack meticulously designed from the ground up to be decentralized and free us from the traditional constraints of financial systems, and we're throwing it all away because on top of all of that tech, we're just holding centralized stable coins. Um, and this is not sufficient. If we want to eventually arrive at a truly decentralized economy, one that's better than what we had before, we we need to move past this.

We cannot accept this as good enough. And so you know you see the second category here which is decentralized. And at first glance it sounds like the problem has been solved. But we can see from the market that it definitely has not been because these bottom tokens cannot scale to the the size necessary. Um of this 220 billion the vast majority is in these centralized systems which scale very well and only a small portion is in in these decentralized um alternatives.

And the reason is because these have to be overcolateralized which means that you're basically putting money in a contract you're locking away and that money is not doing anything for you or generating any value. Uh it's very very inefficient. And so coming from uh you know it in the last slide uh this was the state of the game today and this is also the state of the game 5 years ago. Almost nothing has changed in this time. Uh but five years ago people wanted to change it.

People had belief that we could do better that we could create a scalable decentralized stable coin. Uh and people were work working towards that. Uh but now 5 years later it never came to fruition and we've given up. People don't work on it and it's extremely taboo to work on it. Um and so how did we go from this place of really believing in this mission to to to being afraid, being terrified?

Uh and and the the way that we did this is through a traumatic history. All of the tokens you see up here are previous attempts at creating an algorithmic stable coin. Um and this is definitely not an inclusive list. There are many many more, but basically every attempt has failed in some capacity. Um unfortunately the ones on the left here are the the reserve based systems are the the more household names.

These are the ones that our people are really familiar with and really traumatized by. Uh primarily Teral Luna and US. uh which was a disaster. It was a complete disaster. We saw you know this system grow way too fast up to 18 billion and then within you know two to four weeks go down to almost zero.

Um and the entire industry just took that $18 billion hit with you know retail users really bearing the brunt of that. Um and this is this token primarily spawned the the FUD around algorithmic stable coins. But all of the you know a lot of these other attempts also failed. And so when I say algorithmic stable coins, this is what people think of. They think of Terral Luna and this reserve-based strategy um and they they saw that it didn't work and they assume that every other attempt will be the same and will fail the same way.

But I think this is I think this is the real failure here because this is a very limited way of thinking about uh the way that we can solve this problem. Truly, there's there's so many different tools that we have at our disposal to create a better system. Um so so to really quickly break down these two types of systems um without getting too technical the reserves based which you see on the left they basically hold a pile of assets um outside of the t the stable coin and when the price of the coin goes down they attempt to buy back the coin indirectly and push the price back up. The issue here is that when the reserves run out there's no uh lender of last resort things spiral confidence goes down. there's a bank run and the token goes to zero either very quickly or gradually.

Um, and we've seen this play out many times and I don't think that there's really any future where this reserves based stable coin uh succeeds on a a long time horizon. Um, on the right you have credit based stable coins and a credit based token a credit based currency is is really not anything novel. This is the same type of mechanism used to maintain all current modern currencies like the US dollar. Um it uses a system where users can uh give a loan to the protocol and exchange uh the the belief that in the future they will be paid back. Um and this is how they maintain price.

And the the protocols you see here are more of a lineage rather than a random selection. So each of these protocols uh starting in 2021 uh made an attempt at creating a credit based stable coin and each of the protocols learned from the ones that came before it and did slightly better. And I think this is really where we need to continue our efforts because uh each attempt can be slightly better than the last attempt. And we can, you know, there's a lot of data to say that something like this might work at scale uh and it might solve the the problem between uh centralized tokens and unscalable tokens. Right?

So I I think that the so I would really want to encourage people to um to distinguish these two types of systems from each other. Uh and and you open your minds to the fact that maybe a credit based stable coin does have potential to work. Um, and so the question that I ask myself pretty regularly when I'm working on Pinto and the question that I would encourage a lot of people to ask themselves uh when they're feeling upset by this term algorithmic stable coin uh is should we give up? You know, have we suffered enough? Are we are we so hopeless about the future of this system that we need to just uh go home, lick our wounds and accept that the economy will be centralized forever?

Um, and for me it's it's a resounding no. like we can't give up at this point. We we've come this far in creating a decentralized economy. Uh and I think we can go a little bit further and I understand that there's been a lot of pain in the past and there's a lot of risk in the future. But I I refuse to believe that this is the final threshold, the one single point where we cannot cross over from a traditional financial system into a new better decentralized financial system.

And so I will continue to work on this and continue to push this needle forward. Uh and I really encourage everybody to consider that maybe there is a way to create a healthy decentralized and scalable stable coin. Uh and that's that's all I wanted to say. So I'll be around all day if anybody wants to talk more. [Applause] [Music]