Sonic Labs Scraps Algorithmic Stablecoin Plans Amid Regulatory Pressure

A week ago, Sonic Labs announced plans to launch an algorithmic USD stablecoin, aiming to introduce a new yield-generating asset for its blockchain.

A week after announcing plans for an algorithmic USD stablecoin, Sonic Labs has scrapped the idea amid increasing regulatory pressure in the U.S., a co-founder said.

In mid-March, Sonic Labs unveiled its stablecoin ambitions, but the company has now decided to pivot.

“We are no longer pursuing a USD-based algorithmic stablecoin,” co-founder Andre Cronje said on social media on Wednesday.

Announcing the pivot, Cronje said that the evolving regulatory landscape had made it unfeasible to proceed further.

“As many of you know, the regulatory environment is rapidly evolving, and the U.S. government is actively working on legislation to regulate stablecoins,” Cronje said.

Unlike traditional stablecoins backed by fiat reserves, algorithmic stablecoins rely on smart contracts to maintain their peg. Such coins came under intense scrutiny following the collapse of Terra’s TerraUSD (UST) in 2022, which sparked broader market fallout.

The U.S. government is speeding up efforts to regulate the stablecoin sector, with both the GENIUS Act and STABLE Act advancing in Congress.

These proposals mandate full reserve backing for stablecoins and effectively sideline algorithmic models.

Cronje added that lobbying efforts are underway to favor the GENIUS Act over the STABLE Act, with lawmakers aiming to finalize stablecoin regulations within two months.

Industry giants like Tether, Circle, and Ripple are also battling to play a key role in the U.S. government’s stablecoin strategy as regulators mull using them to reinforce the dollar’s global dominance.