Bybit Arbitrage is a trading tool that simplifies arbitrage trading by capitalizing on funding rate and price differences.

If you're seeking consistent returns with minimal risk, Bybit Arbitrage is the perfect ally.

 This robust tool empowers you to generate regular profits with minimal risks by capitalizing on price disparities across different markets. Its user-friendly interface lets you easily spot and exploit these differences, so that you can execute flawless arbitrage trading in the crypto market with confidence. Read on to learn how Bybit Arbitrage makes arbitrage trading an effortless way for you to achieve low-risk gains.

 is the buying and selling of the same or similar asset(s) at the same time across different markets to earn from slight price deviations. This act of purchasing an asset at a fixed price — while simultaneously selling it at a higher price — allows a trader to instantly make profits without any risks. 

While arbitrage trading has long been a staple in traditional financial markets, such as stock and forex, the advent of crypto trading has propelled arbitrage trading to new heights — thanks to the heightened volatility of the crypto market. Additionally, unlike traditional stock markets, crypto markets are traded 24/7, offering more opportunities for arbitrage traders to reap profits from the price gaps across exchanges and markets. 

 across exchanges or within a single exchange. Keep in mind that if you opt to arbitrage trade across different platforms, accessing your profits may prove to be complex, due to the need to transfer your assets between the exchanges, which can take up to several days to complete. On the other hand, arbitrage trading on a single platform is more straightforward — but more competitive as well.

There are multiple arbitrage trading strategies, but the most common ones in the crypto market include funding rates arbitrage, spot-futures arbitrage and futures arbitrage. 

Funding rates arbitrage allows traders to profit from variations in funding rates between 

 contracts. In contrast, spot-futures arbitrage enables traders to profit from price disparities between the spot and 

 for the same asset. Meanwhile, futures arbitrage involves profiting from price discrepancies between futures contracts with different expiration dates.

Bybit Arbitrage is a trading tool that helps traders identify arbitrage trading opportunities in two ways: funding rate and spread. 

The user-friendly interface organizes trading pairs based on either funding rates or spreads in different markets, so that traders can easily spot disparities in funding rate or price across the markets at a glance. 

Bybit Arbitrage is exclusively available to 

 mode. It facilitates arbitrage trading for USDT Perpetual, USDC Perpetual and USDC Futures contracts, thereby allowing you to enjoy arbitrage trading opportunities between USDT 

Spot pairs and USDT Perpetual pairs, or USDC Spot pairs and USDC Perpetual/Futures pairs. 

The Funding Rate Arbitrage feature exploits differences in funding rates between the Spot and Perpetual/Futures markets on the Bybit exchange. With the Funding Rate feature, traders can earn funding fees while simultaneously managing their positions in order to minimize potential losses and maximize gains through positive and negative arbitrage strategies.

Funding rates for the different trading pairs are listed in descending order. This helps traders to easily leverage the interest rate differential between Spot and Perpetual/Futures contracts.

The Funding Rate feature also allows you to 

 orders (with the same amount, but in different directions) in both Spot and Perpetual/Futures, which enables you to earn funding fees while mitigating potential losses (with potential gains).

holders in Futures/Perpetual contracts pay short position holders. You can leverage this situation by executing a positive arbitrage, which involves

 buying a Spot pair and taking a short position in 

Perpetual to earn steady funding fees. Alternatively, if the funding fee is negative, short position holders pay long position holders. In this case, you would perform a negative arbitrage by shorting a Spot pair and going long in a 

The Spread Arbitrage feature helps traders capitalize on price discrepancies between different markets for the same cryptocurrency asset. With this feature, you can easily compare the market prices of an asset traded across various trading pairs and contracts. While Spread Arbitrage may be similar to spot-futures arbitrage, it offers more arbitrage opportunities since it covers a broader range of markets, unlike spot-futures arbitrage, which targets specific markets

With Spread Arbitrage, the aim is to profit from the eventual price convergence as you buy the crypto asset at a lower price in one market (e.g., Spot) and sell it at a higher price in another market (e.g., Futures). 

As the futures price will eventually align with the Spot price when the contract expires, you’ll be able to take advantage of the simultaneous price disparity for the same asset.

In order to trade with Bybit Arbitrage, you’ll first need to 

. Currently, Bybit Arbitrage is exclusively accessible via the 

 for the web version, which will be launched soon!

Bybit Arbitrage offers multiple advantages.

Bybit Arbitrage is a powerful tool for traders seeking low-risk gains in the volatile crypto market. With its intuitive interface and exclusive features, traders can effectively leverage funding rate and price differences to maximize profits while minimizing risks. Bybit Arbitrage offers diverse benefits that make arbitrage trading more accessible and profitable than ever before.

Beginner

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How to Use Bybit Arbitrage to Achieve Funding Rate and Price Difference Arbitrage

An Ethereum Spot ETF is an exchange-traded fund that tracks the real-time price of Ether and allows investment through traditional stock markets. Learn more.

Earlier this year, the U.S. Securities and Exchange Commission (SEC) gave the green light to a number of Bitcoin Spot exchange-traded funds (

), sparking optimism that similar approval might be extended to Ethereum Spot ETFs. Adding to the excitement, news of Ethereum Spot ETF approval in Asia’s first region has heightened anticipation for a potential approval and launch in the U.S. However, despite the buzz, some industry observers remain skeptical. This article explores the potential impact of Ethereum Spot ETF approval on the broader crypto market.

An Ethereum Spot ETF is an exchange-traded fund that tracks the real-time price of 

 and allows investment through traditional stock markets. It offers investors a way to invest in Ether without having to actually buy or hold the asset itself.

An Ethereum Spot ETF operates by pooling investor funds to purchase Ether, which is held in reserves by the ETF.

Rather than navigating the complexities of 

 and exchanges, investors buy shares of the ETF through regular brokerage accounts, just as they would with traditional stocks. These shares represent a stake in the Ether held by the ETF, providing a simple and regulated way to own Ethereum indirectly.

In order to create ETF shares, authorized participants — usually financial institutions — purchase Ether in exchange for ETF shares of equal value, which are then sold onto the market. An authorized participant can also redeem shares by buying enough ETF shares and exchanging them for Spot Ether and taking those shares away from the market.

As a result, the price of ETF shares tends to fluctuate in line with Ethereum's Spot market price. If it didn’t, there would be an 

 opportunity to profit from any mispricings in the ETF price. However, it’s still theoretically possible for the ETF to trade at different prices simply because of supply-and-demand factors.

ETFs as securities are regulated by the SEC, so an Ethereum Spot ETF provides a regulated product that investors can purchase. By contrast, Spot Ether is being investigated by the SEC to determine whether it should be classified as a security, and currently lacks regulatory clarity. 

This setup offers numerous benefits for investors. It simplifies the investment process, allowing anyone with a brokerage account to invest in Ethereum without setting up a crypto exchange account or managing storage. This can save time and give some investors greater peace of mind. An ETF structure also provides the regulatory clarity that institutional investors need, which can enhance liquidity and trading volumes.

Security is paramount in the realm of cryptocurrency, and the ETF provider takes it seriously. To safeguard Ether holdings, ETF providers employ a combination of 

 and insured custodial services. As a result, they could potentially minimize the risk of theft or loss that individual crypto investors may encounter.

The Ethereum Spot ETF bridges traditional finance (TradFi) and the exciting (but still growing) cryptocurrency space. It offers the security and ease of trading associated with traditional financial markets while opening up investment opportunities in Ethereum for a broader audience.

Both excitement and regulatory scrutiny characterize the current landscape of Ethereum Spot ETFs. Major financial institutions like 

 and Fidelity have submitted applications for these ETFs to the SEC. Still, decisions have been delayed, with the next 

If applicants begin updating their filings by April, this may indicate they’re incorporating feedback from the regulator, which could be interpreted as a positive sign. However, a lack of updates to filings could indicate that the SEC isn’t maintaining the same level of discussions with issuers that led to its 

Another challenge is that the SEC is still investigating whether Ether should be classified as a security, especially since it transferred its consensus mechanism to 

. Earning rewards through staking could meet criteria that determine whether an asset is a security. Ethereum also provides a foundation for 

 (DeFi), which could add to the complexity of the review. 

Analysts' opinions vary regarding the likelihood of ETH ETF approval. One Bloomberg analyst, for instance, 

 chance of approval by May. However, the SEC's recent silence might hint at a less favorable outcome.

The approval of Ethereum Spot ETFs is eagerly awaited because it could mirror the impact of Bitcoin Spot ETF approval, which led to an influx of capital in the market. It would mark a pivotal milestone, likely to attract increased investment and further validate cryptocurrency. The crypto community is closely monitoring these developments, as the coming months will be crucial in shaping the future of Ethereum investment opportunities.

 was recently given to the first Spot Bitcoin and Ethereum ETFs in one of the Asian regions. This landmark decision positions the city as a trailblazer in the Asian financial landscape, embracing the integration of popular cryptocurrencies into mainstream investment avenues.

This milestone has sparked excitement within the crypto community, indicating a positive reception toward digital assets in that region. Analysts believe this move could set a precedent for other jurisdictions to follow, potentially leading to broader acceptance and recognition of cryptocurrencies as a legitimate asset class.

These newly approved ETFs are expected to attract a wave of fresh investors — both retail and institutional — by offering a regulated and familiar investment option for exposure to cryptocurrencies. This growth of interest could increase stability in the crypto markets, possibly influencing the price movements of Bitcoin and Ethereum in the region.

The timing of this approval is noteworthy, considering that the U.S. could also be on the cusp of approval of an Ethereum Spot ETF. If this proactive approach inspires other financial centers beyond the U.S. to consider similar approvals, it will palpably contribute to the global expansion and maturation of the cryptocurrency market.

Current Impact of Ethereum Spot ETF Applications on the Crypto Market

The buzz surrounding Ethereum Spot ETF applications is noticeably affecting the crypto market, particularly Ethereum's price and overall sentiment. Submission of new ETF applications to the SEC has coincided with an 

, pushing it to around $3,700. This uptick reflects the market's optimism and positive sentiment regarding the potential for easier access to Ethereum. However, the market has exhibited some volatility as well, with Ether dropping over 14% in a week in early April. 

Despite these fluctuations, there's a general expectation that ETF developments would significantly impact Ethereum's price dynamics, similar to what was observed with the recent Bitcoin Spot ETF approvals. Moreover, the recent approval of cryptocurrency ETFs has further fueled optimism and positive expectations for increased investment inflows and a broader recognition of cryptocurrencies.

To sum up, the current impact of Ethereum Spot ETF applications on the crypto market is marked by heightened anticipation along with some volatility. Ethereum's price is responding to changes in the regulatory landscape and the potential for broader adoption of cryptocurrency-based investment products.

What Will It Mean if an Ethereum Spot ETF Application Is Approved?

The approval of an Ethereum Spot ETF application by the SEC would mark a significant milestone for the cryptocurrency market, especially for Ethereum. Following are some of the potential benefits.

Drawing parallels to the earlier Bitcoin Spot ETF approvals, some pundits expect an initial surge in Ethereum's price following the expected announcement, reflecting renewed confidence and interest in Ether as an asset. Over the long term, Ethereum Spot ETFs could contribute to growth and stability, similar to the impact that Bitcoin Spot ETFs have had on BTC’s price.

However, there are key differences to consider. The SEC's cautious stance on Ethereum — notably because of its PoS consensus mechanism — could influence the approval process and subsequent market reactions. In addition, Ethereum's unique ecosystem, including its role in DeFi and 

, could lead to different market responses as compared to those following the Bitcoin Spot ETF approvals.

The potential approval of Ethereum Spot ETFs is a crucial turning point for the crypto market, promising easier access, increased investment and greater legitimacy. Although short-term price fluctuations may occur, the long-term effects could echo the positive growth recently witnessed with Bitcoin Spot ETFs, promoting a more mature investment environment for Ethereum.

Intermediate

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Ethereum Spot ETF Approval: Its Impact on Crypto Markets

Grayscale Investments has filed a registration statement on Form S-3 with the SEC to register shares of its Grayscale Ethereum Trust (ETHE) as part of efforts to uplist the trust to a spot Ethereum ETF on the NYSE Arca.

Daily Top Performer — Automata Network (ATA)

The SPX index is up 0.02%, investor focus on earnings and U.S. interest rates continues. The broader cryptocurrency market is down, with Bitcoin and Ether dropping by 3.78% and 2.41%, respectively in the past 24 hours.

Today’s outperformer is ATA, which jumped 8.9% after Automata launched Multi-Prover AVS on Eigenlayer Holesky Testnet to boost decentralized security.

Automata Network (ATA), founded in 2019, is a Web3 platform providing private web services for decentralized applications, focusing on secure, anonymous transactions and governance. Key features include a private voting system and MEV minimization to enhance user privacy and security. Automata's Multi-Prover AVS, which utilizes TEE Coprocessors to enhance security, is now available on the Eigenlayer Holesky testnet. This system employs the TEE Prover as a secondary security measure in decentralized systems. Operators, restakers, and developers are encouraged to learn more about this advancement on their website.

Check Out the Latest Prices, Charts, and Data of 

Grayscale Investments, the world's largest crypto asset manager, has filed a registration statement on Form S-3 with the SEC to register shares of its Grayscale Ethereum Trust (ETHE) as part of efforts to uplist the trust to a spot Ethereum ETF on the NYSE Arca. This filing follows NYSE Arca’s application and is a crucial step in the regulatory process required for offering shares continuously upon approval. The shares will not be sold until the registration is declared effective, and this offering is subject to the Securities Act of 1933. Grayscale emphasizes that the trust, not registered under the 1940 Act, involves high risk and volatility, is focused solely on Ethereum, and does not offer direct investment in Ethereum.

BlackRock's spot bitcoin ETF, IBIT, has significantly impacted the firm's overall ETF flows, comprising 24% of its total. Eric Balchunas, Bloomberg's Senior ETF Analyst, highlighted the fund's success during a panel on Hong Kong's newly approved spot crypto ETFs. Since its launch in January, IBIT has attracted consistent inflows for over 70 days, accumulating more than $18 billion in assets under management and becoming one of the most successful ETFs in history. The IBIT fund is second only to Grayscale's ETF in terms of assets but has seen remarkable trading volume along with other spot bitcoin ETFs, totaling nearly $230 billion.

Gamium, supported by Parachain Ventures, DAO Maker, and Mr. Beast among others, has its token $GMM listed on major exchanges with a fully diluted valuation of around $43M. The platform is promoting a beta points airdrop to reward early users, where participants can sign up and earn points through various activities like launching an MST, trading, daily logins, and referrals. Details on point earning and distribution are available in a dedicated blog post. However, potential users are cautioned to research due to the inherent risks associated with DeFi protocols and trading.

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Grayscale Files for SEC Registration to Convert Ethereum Trust into a Spot ETF on NYSE Arca

Sharky is a Solana-based lending and borrowing DeFi solution that utilizes NFTs as loan collateral.

Cryptocurrency lending and borrowing has always been a prominent niche of the decentralized finance (

) industry, championed by platforms like Aave (

). A much rarer variant of DeFi borrowing and lending is based on non-fungible tokens (

Sharky.fi, or simply Sharky, is a Solana-based lending and borrowing protocol that uses NFTs as collateral to facilitate the DeFi processes on the network. By putting up NFTs as collateral, users can borrow funds via short-term loans in Solana's native SOL tokens. For lenders, the platform is also a great way to earn high APY rates in just 7 to 14 days, while having their loaned funds protected by the NFTs.

Having established itself as the leader of NFT-based lending and borrowing on Solana, the Sharky project has ambitious plans to integrate two more highly popular crypto asset types — Ordinals and real-world assets (RWAs).

 (SHARK) is a lending and borrowing app on the 

 (SOL) blockchain that lets users provide NFTs as collateral to access short-term loans in SOL tokens.

 Lenders can view NFTs offered as collateral, and make loan offers secured by their preferred NFTs.

Although Sharky's public launch on the Solana mainnet dates back to April 2022, the platform operated without its 

, SHARK, for its first two years in the market. The SHARK token was eventually launched in mid-April 2024.

Using its innovative business concept, Sharky quickly established itself as the leader of NFT lending. According to the project’s team, Sharky has a 90% share of the NFT lending market on Solana and has issued more than 1.4 million NFT loans.

Following the recent launch of its SHARK token, the project aims to integrate additional crypto asset types in the future. These include 

 (RWAs). Another ambitious product type considered for future implementation on the platform is uncollateralized consumer loans.

As a lender on Sharky.fi, you can browse NFTs from a variety of collections offered on the platform and make a loan offer for potential borrowers. The collections available on Sharky include the platform's own 

 collection, Mad Labs, Solana Monkey Business (SMB), Tensorians, Namaste and more. Lenders’ offers are shown to potential borrowers on the platform, who then choose the best offer based on their borrowing needs.

The NFT provided by the borrower is used as collateral, and the lender makes their funds available in SOL tokens. Lenders earn interest on the funds, with the loan duration typically between 7 and 14 days. Interest rates, naturally, will vary depending upon on-platform activity. Usually, 

 for active loans range between 120% and 220%, though they can go up to 360%. As such, Sharky loans are an excellent way for lenders to earn some serious interest quickly. If a borrower fails to repay the loan in full, the NFT used as collateral is transferred to the lender.

For borrowers, the Sharky platform is an excellent opportunity to access SOL funds for short-term needs quickly and flexibly using their NFTs, rather than cryptocurrency, as collateral. The best part of the platform's borrowing mechanism is that you remain in possession of your NFT during the loan period as a borrower. While your NFT is used as collateral, its ownership isn't transferred to the lender while the loan is active. The ownership transfer may only happen at the end of the loan period if you fail to repay the loan in full.

Maintaining the ownership of your NFT allows you to keep using it on various DeFi and other apps for purposes such as staking or satisfying 

 eligibility requirements, among other potential uses.

Sharx is the platform's own NFT collection. One of the most popular collections used in Sharky's lending and borrowing operations, sharx is made up of 10,111 adorable shark characters. Purchasing a sharx NFT not only opens up borrowing opportunities but also entitles you to upgrade or boost your Chowder points, rewards that are used in Sharky's loyalty program. 

As a sharx holder, you're entitled to the airdrop of Sharky.fi’s governance token, SHARK, and you can also stake sharx to earn FISHY tokens.

The newly launched SHARK token is envisioned as the platform's governance asset, with a total supply of 100 million. As of the time of writing in late April 2024, only some specific details on the actual governance processes powered by SHARK are available. Thus, the token's actual use in on-platform governance is expected to be outlined in the future.

SHARK will be airdropped in two phases, with 4.25% set aside for the first phase and 3.5% for the second. Of the former, 70% is allocated to its community, with the remaining 30% is distributed to partner communities. Meanwhile, the second phase is held as a staking pool event with a lockup duration of 30 to 60 days exclusively for OG, new users and sharx holders.

 of Sharky. Unlike the brand-new SHARK token, FISHY was issued back in 2022 at the start of the platform's operations. FISHY can be earned by staking sharx NFTs, accumulating reward points and participating in Sharky's social media campaigns. The token can be used to boost sharx NFTs, which in turn can earn you additional Chowder points. FISHY also gives you access to NFT raffles and auctions held on Sharky.

The SHARK token can be bought on Bybit through a Spot pair with USDT (

). Additionally, you can also take part in Bybit's current campaigns for the token for the chance to grab a share of the 

, which includes a Token Splash event featuring 456,000 SHARK through Apr 30, 2024, 9AM UTC, and a Lucky Draw with 58,000 SHARK in rewards through Apr 30, 2024, 9:59AM UTC.

Lending and borrowing using NFTs as collateral is a novel concept that has earned Sharky leadership positions in this niche. As more platforms adopting this business model emerge, the competition in the field is likely to intensify. However, as of now, Sharky remains the absolute leader of the Solana-based NFT lending and borrowing market. 

As NFTs experience a resurgence in popularity following the post-2021 dip, DeFi solutions that make innovative use of these assets, such as Sharky, stand to benefit. Later in 2024 and beyond, we’ll likely hear more about NFTs being used as legitimate collateral in crypto finance — a new trend helped to no small degree by the Sharky platform.

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Sharky.fi (SHARK): The Decentralized Platform for Instant NFT Loans

Stablecoin

If you've been keeping up with crypto, you'd probably have heard about the recent UST-LUNA crash. UST is an algorithmic stablecoin — but what is a stablecoin, and how does an algorithmic stablecoin work? Here's everything you need to know.

 have a highly volatile nature which depends upon factors such as market conditions and the demand-and-supply of the 

. The level of risk involved can be intimidating to some people. Enter 

 — a crypto asset class which has become an integral part of the ecosystem in the past few years. In particular, one subtype of stablecoins — the algorithmic stablecoin — utilizes technology to help automate the trading process.

This article will take you through the concepts of stablecoins and algorithmic stablecoins, their key features, and the different types of algorithmic stablecoins currently making their rounds in the crypto market.

A stablecoin is a type of cryptocurrency that offers better stability compared to its peers, as it derives its price from another asset’s value. This process of pegging a stablecoin to an underlying asset is the main reason for its growing popularity in the crypto world. Reports suggest that the 

, from $5.9 billion in 2020 to more than $35 billion by the beginning of 2021. Meanwhile, stablecoin usage 

Stablecoins facilitate trades on crypto exchanges, including 

 and lending activities on the crypto network. Additionally, stablecoins can be used to mitigate trading fees on most exchanges, since there’s no charge when exchanging U.S. dollars for a stablecoin. 

Traders have the option to exchange fiat currency for a stablecoin and then exchange the stablecoin for another 

, thereby saving on trading fees. Instead of buying Bitcoin directly with fiat currency (e.g., the U.S. dollar), traders often exchange fiat currency for a stablecoin – and then execute a trade with the stablecoin for another cryptocurrency, such as 

 central governing authority. When you buy a stablecoin, you accept that the issuer has a sufficient amount of assets pegged to the stablecoin. The value of a stablecoin doesn’t fluctuate much over time if it’s pegged to a commodity that’s comparatively less volatile. To understand the value of a stablecoin, here’s a simple explanation:

 is a stablecoin that’s pegged to the U.S. dollar. If you hold 1 USDT in your wallet, its value is worth 1 USD. You can then trade the stablecoin against any crypto coin without the risk of incurring huge losses associated with market fluctuations.

A graph depicting how the total market capitalization of stablecoins has increased 10x since the beginning of 2020. 

Algorithmic stablecoins don’t have any collateral attached to them. As such, they’re referred to as “non-collateralized” stablecoins. They’re decentralized in nature, and are tailored to improve market price stability without involving a central authority — which is often done by “pre-programming” the supply to match the demand of the asset. This is done by using predetermined stabilization measures hardcoded into 

The algorithm underlying these stablecoins is programmed to increase the supply of currency in the event of a “deflationary trend” in the token, and to decrease the supply of the currency in the event of a “decline in purchasing power.” The way these algorithmic stablecoins respond to market events with automated stabilization measures increases their decentralized nature, giving rise to a smart, responsive currency that’s not controlled by a single institution — which is similar to a central bank’s working model.

These purely algorithmic stablecoins reveal the internal logic of the tokens and any collateral used for maintaining token value, thereby maintaining transparency on the network. 

An algorithmic stablecoin stabilizes the market through the mechanisms of buying and selling the referenced asset or its derivatives. It uses an Ethereum-based cryptocurrency protocol that issues coins when the price surges and buys them from the market when the price drops. 

Here is how algorithmic stablecoins work:

A flowchart explaining the working of algorithm stablecoins. 

An algorithmic stablecoin aims to help traders (advanced and new users) get comfortable with the idea of trading. Some features of algorithmic stablecoins include:

Stablecoins are stores of value because of the limited price volatility associated with them, along with the convenience of using these coins. Thus, stablecoins can be easily 

 for cross-border transactions. These stablecoins also reveal collateral diversification, creating resistance to 

The parameters of the algorithm, which is hardcoded into the smart contracts, ensure an automatic reaction to market data without direct manual intervention. These parameters aim to stabilize market 

 for these tokens after studying underlying market conditions.

Stablecoins can be stored in virtual wallets to ensure security by using a 

. Only the stablecoin holder can access the associated funds. Advanced encryption technology can be leveraged for additional security levels. 

Algorithmic stablecoins provide true decentralization within the stablecoin market by removing third-party interference, a mechanism popular among traditional stablecoins. These stablecoins eliminate the problems that come with raising enough capital required to serve as the reserve.

Algorithmic stablecoins can be used to trade on crypto exchanges, including staking and lending on crypto networks. Investors can avoid the trading fees charged by most exchanges imposed while exchanging U.S. dollars for a stablecoin. Instead, they can exchange fiat currency for a stablecoin and then exchange the stablecoin for another cryptocurrency.

While different algorithmic decentralized stablecoins have varied features or traits, they generally follow the same protocols. Following are the different types of algorithmic stablecoins.

By rebasing algorithmic stablecoins, the supply regulates their value. The algorithm in a rebase mechanism automatically decreases the supply of coins when their price drops below a threshold, and issues additional coins when it rises above a specific level. This mechanism maintains the value of the coin, irrespective of market conditions. The idea is to ensure that if you have 1% of the supply before the rebase, you’ll still have 1% after it — even when the number of tokens in your wallet fluctuates. This means you retain your share of the network, regardless of the price of the native token. 

 model, instead of a “rebasing” currency there are two tokens: A supply-elastic currency, and investment shares of the network. Owners of the latter are sole receptors of inflationary rewards (from positive supply increases) and the sole bearers of the debt burden (when demand for the currency falls and the network contracts).

Over-collateralized stablecoins need a large number of cryptocurrency tokens maintained as a reserve for issuing a lower number of stablecoins. This is done as a buffer against price fluctuations. An example of an over-collateralized stablecoin is MakerDAO's 

, which is collateralized with ETH cryptocurrency. This stablecoin requires a minimum of 150% of collateralization. This means that if the price of the underlying cryptocurrency drops low enough, the stablecoins will automatically be liquidated. 

Fractional algorithmic stablecoins are partially collateralized, and are backed by both asset collateralization and cryptographic algorithms. This protocol uses two different assets, namely the Frax (FRAX) stablecoin (to maintain a 1:1 peg to the U.S. dollar) and the Frax Share (FXS) governance and utility token. A user can mint FRAX by supplying the USDC stablecoin as collateral, along with the FXS token, in accordance with the quantity set by the Frax collateral ratio (CR).

The potential risks involved with algorithmic stablecoins are that they can be tenuous in times of financial crisis or periods of extreme volatility. Here are some of these risks.

Algorithmic stablecoins face the risk of decreased and increased supply every time the market fluctuates. In cases where the digital asset’s price exceeds the valued price, more tokens are generated by the algorithm. The newly generated tokens circulate on the network, to be purchased by potential traders. If the price drops below the valued price, the algorithm burns the tokens. This reduction in supply is compensated for by offering bonds to buyers — who get paid only when the price rises above the valued price. 

Reliance on oracle technologies creates an information bottleneck, since blockchains cannot access data outside their protocol. Oracles are used to obtain prices from exchanges, compare these prices, and adjust the system to maintain the balance. Additionally, the acquired data has to be accurate with respect to the current price. It’s a challenge for developers or project managers to maintain the oracles’ accuracy.

The risk of peg separation (peg break) occurs when a chain breaks away from the parent chain. This is a worst-case scenario for any stablecoin, as it can destabilize the algorithmic stablecoins and cause price fluctuations that eventually could kill the entire project.

[Editor’s note: In light of the recent TerraUSD (UST) crash, please do your own research and proceed with the utmost caution if you’re looking to invest in any algorithmic stablecoin. 

The following is not investment advice, and Bybit will not be held responsible for any losses incurred

 aims to be an index of stablecoins that uses decentralized finance (

) primitives to stay near the dollar mark while subsidising the collateralization ratio in order to protect users from counterparty risk, holdings seizure risk and bank run risk, etc. DefiDollar allows investors to index varying stablecoins with a single token (DUSD) that protects users from the underlying risks attached with such tokens.

Empty Set Dollar (ESD) offers a combination of decentralization, novel protocol mechanisms and 

 that makes it a central part of the DeFi space. ESD is a decentralized, oracle-driven stablecoin that uses novel protocol mechanics to overcome the downfalls of other rebasing tokens. Token holders who do not want to actively maintain the price peg can use ESD in 

, or hold it as a stablecoin without the need for a counterparty or committing funds to a CDP — and without needing to worry about amounts changing in their wallet.

 is looking to serve as a DeFi money market, including services like minting and redeeming the FRAX

 provider (LP) tokens to various trading pairs on 

. The Frax crypto protocol uses two distinct stable assets: Frax stablecoin (FRAX), which is pegged 1:1 to the U.S. dollar, and the Frax Shares (FXS) governance and 

 is a decentralized stablecoin that maintains price stability with a flexible supply. Rebasing is used by the underlying protocol to adjust the supply of AMPL daily. This provides better price stability as compared to fixed-supply cryptocurrencies. Ampleforth’s stablecoin, AMPL, is elastic and non-dilutive.

One of the worst crypto crashes to date took place in April 2022, with the market still struggling to bounce back as of this writing (May 20, 2022). Although many cryptocurrencies recorded massive losses, stablecoin 

 and its sister token, Terra blockchain’s native token 

UST, an algorithmic stablecoin, saw its value 

. As news of its crash hit various crypto-related sites, the topic of algorithmic stablecoins entered the spotlight. 

Are Algorithmic Stablecoins a Good Investment? 

Algorithmic stablecoins aim to stabilize market fluctuation by using smart contracts that are hardcoded to automatically decrease or increase the supply of the coin based on market conditions. This nascent technology is recognized by many investors as a 

 in the crypto world. In the next two years, the stablecoin market is 

In a centralized stablecoin system, investors are susceptible to interference from government regulations in the jurisdictions in which they’re incorporated. If the government decides to freeze the bank accounts of issuers for any reason, then the redeemability of the stablecoin becomes zero, thereby negating its value The decentralized nature of an algorithmic stablecoin protects it from such risks. 

Without a doubt, the UST-LUNA collapse has shaken up the crypto industry. Some regulatory experts say this may mark the end of algorithmic stablecoins; indeed, the future of algorithmic stablecoins looks rather bleak. For now, we expect investors and institutions to stay away from algorithmic stablecoins, and it’s hard to tell what their future holds.

Stablecoins have thus far been regarded as a new and safer form of crypto investment. Algorithmic stablecoins, however, are somewhat of an exception as they 

 The UST-LUNA incident has highlighted some potential areas for concern. Perhaps current technology isn’t nearly sophisticated enough, and 

 amount of regulation/control is required … even for stablecoins.

What Are Algorithmic Stablecoins? (Lessons Learnt From The UST/LUNA Crash)

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