Sonic Labs Drop USD Stablecoin Plan Amid US Regulations – Here’s Why!

Sonic Labs has suddenly dropped its plan to launch a USD-backed algorithmic stablecoin, shifting its focus to a UAE dirham-backed alternative. The decision comes as stablecoin regulations tighten in the US, thus, the company is shifting its focus to the United Arab Emirates (UAE) dirham.

Sonic Labs’ Sudden U-Turn

Just a week after hinting at launching a USD-based algorithmic stablecoin with an annual percentage rate (APR) of up to 23%, Sonic Labs has now dropped the plan. Co-founder Andre Cronje confirmed this in a post on X, citing regulatory concerns.

Instead, the company is working on a “mathematically bound numerical Dirham” that will be settled and denominated in USD. However, Cronje insists this is “definitely not a USD-based algorithmic stablecoin.”

The timing of this move aligns with the UAE’s plans to launch its blockchain-based digital dirham in late 2025. Khaled Mohamed Balama, governor of the UAE Central Bank, believes this initiative will strengthen financial stability and curb financial crime. The digital dirham will function alongside physical cash, expanding its use in payment channels.

Algorithmic Stablecoins Still Face Scrutiny

Sonic’s reversal follows skepticism surrounding algorithmic stablecoins, especially after Terra’s infamous collapse in 2022. The $40 billion crash of Terra’s UST stablecoin wiped out billions in investor funds, triggering global concerns about such assets.

Cronje himself had expressed doubts about algorithmic stablecoins in the past, citing personal stress from their risks. “Pretty sure our team cracked algo stablecoins today,” he once said, “but previous cycles gave me PTSD.”

The European Union has already banned algorithmic stablecoins under its MiCA regulations to prevent another Terra-like disaster. The US is also moving in that direction.

Stablecoin Regulations Loom in the US

The US government is actively working on stablecoin regulations through the GENIUS Act and the STABLE Act. Both bills mandate a 1:1 reserve ratio and avoid algorithmic models altogether.

Authorities aim to finalize regulations within two months, with major issuers like Tether, Circle, and Ripple positioning themselves to play a central role.

Therefore, Sonic Labs is choosing to adapt rather than face uncertain regulatory challenges in the US.