Algorithmic Market Operations in Crypto
Algorithmic Market Operations (AMOs) are operations that automatically control the supply of algorithmic stackcoins, improving scalability, decentralisation and transparency.
What are Algorithmic Market Operations?
Our understanding of traditional Stablecoins is relatively simple. The most common types are secured steablecoins – they are backed by fiat, cryptocurrency or tokens on the circuit that can be redeemed or exchanged. An example of a secured stablcoin is Tether (USDT), which is the most widely used stablcoin with a market capitalisation of over $65 billion as of 2022.
In contrast to Tether, which is manually mined or burned to increase or decrease its supply, algorithmic stablecoins automatically rely on algorithmic market operation modules (AMOs) to control supply. This benefits the system by providing scalability as well as increased decentralisation and transparency.
By providing an AMO solution, Stablecoins are more likely to achieve the growth and size required for adoption. AMOs also remove the need for a centralised team to make internal decisions, as this task in this case falls largely to smart contracts. In turn, this reduces the risk of human error and manipulation.
This makes stabelcoin capital efficient, as it issues additional coins when the price rises and burns them when the value falls. It also eliminates the need for collateral. Examples of algorithmic stabelcoins are Basis Cash and Empty Set Dollar.
Sam Kazemian is the founder of FRAX, a fractional algorithmic stablcoin that is partially collateralised and stabilised algorithmically. It is the only fractional-stablecoin that has maintained its bindings since inception. FRAX is open-source and permission-free, bringing a truly reliable, scalable and stable asset to the future of decentralised finance.