Algorithmic stablecoins can only be successful in the long run if they are widely adopted in payment transactions. The Block writes that analysts at Goldman Sachs came to this conclusion.

In their report, experts noted that stablecoins are currently used as a means of payment “only on a limited level”.

“If the actual use case were to expand over time, this could create a more stable asset demand base. Hypothetically, an algorithmic stablecoin could survive long-term if it had a sustained demand for transactions,” the document states.

Goldman Sachs stated that stablecoins fill a need in the cryptocurrency market by allowing investors to trade in less volatile assets without the hassle of converting to fiat.

“However, algorithmic stablecoins in particular are vulnerable to self-fulfilling crises, as was evident after the collapse of UST and LUNA. […] Appropriate regulation can improve stability and reduce risk in the stablecoin market, analysts added.

Goldman Sachs weighs in on algo-stablecoins in new research note to clients

“Algorithmic stablecoins in particular are vulnerable to self-fulfilling crises, as is evident after the fall of UST and LUNA. In our view, regulation seems likely…” pic.twitter.com/ykKna3PKTu

— Frank Chaparro (@fintechfrank) 17 May 2022

UST and LUNA prices started falling on May 10. This happened against the background of the exit of assets from the Anchor protocol as the rate of return on deposits dropped to 17.87%. As a result, as early as May 8, the “stablecoin” briefly lost its peg against the dollar.

The decline continued on May 11 and was followed by the LUNA algorithmic stablecoin, which dropped to $0.3.

Earlier, Tether CTO Paolo Ardoino said that UST is dangerous for the cryptocurrency market due to its collateral approach.

Recall that in May, US Treasury Secretary Janet Yellen called for the adoption of a law to regulate stablecoins by the end of 2022.