Sonic Labs has decided to cancel its plans for a US dollar-pegged algorithmic stablecoin and is now focusing on developing a stablecoin denominated in United Arab Emirates dirhams. This strategic shift was announced after co-founder Andre Cronje had previously mentioned the potential for a US dollar stablecoin with an annual percentage rate (APR) of up to 23% on March 22.

Just one week later, on March 28, Cronje confirmed in a post on X that the company would not be releasing the USD-based algorithmic stablecoin. According to MSN, he clarified that instead, they would launch a “mathematically bound numerical Dirham,” which will be settled and denominated in USD, emphasizing that it will not be an algorithmic stablecoin based on the dollar.

This change in direction comes shortly after the UAE announced its plans to introduce a digital dirham central bank digital currency (CBDC) in the fourth quarter of 2025. Khaled Mohamed Balama, the governor of the Central Bank of the UAE, stated that the blockchain-based dirham could enhance financial stability and assist in combating financial crime. The new digital currency will be accepted alongside its physical counterpart in all payment channels, according to a report from the Khaleej Times.

Sonic Labs faced considerable criticism regarding its initial plan to launch an algorithmic stablecoin, a model that has raised significant concerns in the cryptocurrency industry since the collapse of the Terra ecosystem in 2022. Cronje himself acknowledged the distress caused by past experiences with algorithmic stablecoins, expressing that he had developed post-traumatic stress disorder (PTSD) related to this model.

The collapse of the $40 billion Terra ecosystem in May 2022 resulted in the loss of tens of billions of dollars within days. Terra’s algorithmic stablecoin, TerraUSD (UST), had previously offered over 20% annual percentage yield (APY) on Anchor Protocol before its downfall. As UST lost its dollar peg, it plummeted to approximately $0.30, while the value of its sister token LUNA decreased by over 98%, dropping to $0.84 from a high of over $120 in early April 2022.

In response to such failures, the European Union’s Markets in Crypto-Assets Regulation (MiCA) bill will prohibit the use of algorithmic stablecoins, aiming to prevent future incidents similar to the Terra collapse. Meanwhile, stablecoins are increasingly being utilized for smaller, everyday transactions rather than large transfers, as noted by CoinFund managing partner David Pakman. He highlighted a significant decrease in the size of stablecoin transactions, indicating their growing use for payments.