Why computational asset experiments keep attracting traders and developers alike.

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On the borders of algorithmic assets, trading is not the only activity that will increase your heart rate.

As the team behind Morph.Finance can attest, developing an algorithmic stablecoin project can be as frustrating and exciting as investing in one.

While algorithmic assets retreated from marketcap highs in mid-December, space continued to attract fearless investors and developers to position themselves at the forefront of a new financial vertical—though it remains an open question whether such projects will ever achieve stability.

Largely formed in the mould of the defunct 2018 project Basis, the algorithmic assets are designed to automatically adjust the total circulating supply of the token on the basis of preset conditions, such as time or price. While they are ostensibly intended to cushion a peg, such as the US dollar, containing and alleviating volatility has proven to be a notoriously difficult problem to solve.

So far, these assets have remained somewhat on the fringe of Decentralized Finance (DeFi), with the top three projects – Empty Set Dollar, Frax, and Dynamic Set Dollar – accounting for only half a billion market caps between them, per Coingecko. Yet traders are still lined up to take spins at the rebase casino, and there is ongoing development of new products like BadgerDAO’s upcoming DIGG—a synthetic asset designed to track the price of Bitcoin. It remains a new, exciting, largely unexplored territory.

A more stable stablecoin

In an interview with our source, the anonymous developers of Morph.Finance—formerly Dynamic.Supply—recounted their story of trying to build a sustainable space project, a story with as many ups and downs as a somewhat stablecoin chart.

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“Dynamic.Supply was a simple Basis fork with modified variables, which launched in early January,” said the team. “We tried to limit whale/bot accumulation by capping the maximum number of tokens per TX during the first hour of launch, but this was unsuccessful.”

The team explained that deep-pocketed ‘whale’ traders hovered the tokens shortly after the launch, and proceeded to rebase the parameters in their favour.

“There was no lockup on the boardroom initially, which opened us up to yield sniping, where users would buy and deposit large amounts of DSTR right before the end of an epoch, collect the rewards, then market dump everything before repeating a few hours later.”

The manipulation discouraged early community members and even some of the developers. Others, however, remained undaunted.

New features, new problems

As is often the case with start-up stories, the obstacles have led to ingenuity. In the case of Morph, the ingenuity came in the form of a zapper contract allowing algorithmic stablecoin liquidity providers to quickly switch between other project pools to their own.

In the short term, it strengthened liquidity, but in the long term, it could also allow Morph to “introduce a market-wide LP zapper system that benefits all farms”—an innovation that could spur the entire area.

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But even the new on-ramps were not enough to stabilize the peg.

“Liquidity significantly improved, however our tokenomics were working against us,” the team said. “Emission of DST and DSTR were both far too fast, leaving us with insufficient time to get new arbitrage mechanics rolled out.”

In order to combat their overaggressive token emissions, the team deployed new contracts, rebranded, and asked the community to transfer their tokens — a process that led to significant griping about gas fees in social channels, as well as no small amount of anxiety that the team might be planning an elaborate rugpull.

Twitter trader @CryptoSpider1 was among those who held his stake through the migration to the new contracts, and said in a statement to Cointelegraph that “rugpull” risks are a part of being on the emerging frontier of the space.

“High risk = high reward, and the dev has shown he/she has no interest in rugpulling but creating something interesting that challenges the current model,” he said.

Next steps

As of 8 p.m. EST today, just a few weeks after the launch of “Dynamic.Supply,” the project reopened liquidity pools, completing Morph’s “metamorphosis”—the conversion of DST and DSTR tokens to Morph Coin (MORC) and Morph Tracker (MORT), along with the new name, website and emission rate.

The Zapper feature—the first of what Morph hopes will be a series of space contributions—has also been transferred from the old brand.

A series of shuffles, tweaks, and innovations, all from a handful of devs, designed to push forwards the algorithmic asset space.

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It’s an open question as to whether Morph’s changes will bring their asset stability, just as similar concerns swirl around most, if not all, algorithmic asset projects. But when asked about Morph’s future and projects like this, Morph’s team already had further innovations in mind.

“Utility! Without it, Morph, and all similar projects will eventually fizzle out. That’s not what we want, we’re aiming to build a sustainable ecosystem that we hope will bring real value to our users.”

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