Stablecoin Market Faces Fresh Challenges with ‘Fourth-Gen Coins’ – South Korean Report

South Korean researchers at Bithumb crypto exchange have reported that the “next generation” of stablecoins will face new challenges as the industry evolves. They believe that the use of algorithms in stablecoin development introduces new risks for token holders, and remain skeptical about their algorithmic designs. Bithumb has identified four generations of stablecoins, starting with first-generation coins like USDT, which use fiat currencies as reserves. Second-generation coins, such as DAI, utilize crypto as a reserve value but are prone to greater value volatility. Third-generation stablecoins make use of algorithmic features to maintain asset price stability, but scalability becomes an issue in unfavorable market conditions. As a response to the risks associated with third-generation coins, fourth-generation stablecoins, like Ethena (USDe), have improved their algorithmic features. Despite their expansion in market share, experts still regard fourth-generation stablecoins as risky, and overcoming this perception will be a challenge for this new class of stablecoins.