The debate over classifying algorithmic stablecoins within the DeFi ecosystem remains unsettled. Some argue that algorithmic stablecoins are genuine DeFi due to their decentralized nature, unlike USDC yield products. A proposed model envisions an ETH-backed algorithmic stablecoin, with liquidity primarily supported by collateralized debt position holders, allowing market makers to manage counterparty risk and bolster DeFi credentials. This framing suggests that DeFi status could extend to such instruments when risk is distributed among diverse market participants.
Proponents also note that even algorithmic stablecoins backed by real-world assets can qualify as DeFi if overcollateralized and diversified, preserving stability even if a single asset falters. The conversation further advocates moving away from dollar-based units toward a broader, diversified index, contrasting with current platforms that rely on USDC like Aave.
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