Riding the DePeg Coaster: The USDR Crisis and the Rollercoaster History of Stablecoin Failures

Stablecoins were heralded as the sanctuary of the cryptocurrency markets, the digital haven where you could park your funds and rest easy, trusting they would remain steady against the fluctuating tides of volatile assets like Bitcoin and Ethereum. But what happens when the anchor itself begins to drift? This becomes an urgent question in the light of the recent calamity befalling USDR, a stablecoin issued by Tangible.

The USDR debacle came without warning. On a seemingly regular Wednesday, the value of USDR plummeted by 50%, instantly causing financial turmoil for its holders and igniting a state of panic and uncertainty throughout the market. Initially pegged 1:1 to the U.S. dollar, the stablecoin found itself floundering at 50 cents on the dollar within just a few hours. To pacify the disarray, Tangible has announced plans for a post-mortem analysis, real estate liquidations, and a compensation plan aimed at restoring stability to its battered stablecoin.

The crisis surrounding USDR has cast a gloomy shadow over the whole stablecoin ecosystem, triggering conversations about their reliability and drawing scrutiny that may very well change the regulatory landscape of this financial sector. But before we venture further into this labyrinth of complexity and risk, let’s take a journey back in time to observe other notable episodes of stablecoin depegging.

Terra’s UST had its moment of weakness when a massive sell-off caused the coin to drop to 99 cents against the dollar. USDD, a stablecoin on the Tron blockchain, strayed off its peg, reaching lows of $0.96. Neutrino USD and USDX, not to be left out of this club of infamous depeggers, lost their pegs with USDN plummeting to $0.85 and USDX shedding 34% of its value in a single day.

The titans of the stablecoin world, Tether, Binance USD, and True USD have not been immune to these fluctuations either. Tether briefly unmoored itself, falling to $0.993, and Binance USD had its dalliance below the dollar mark. USDC, backed by Circle Internet Financial, faced significant redemptions following the revelation that its reserves only consisted of 8%.

Even smaller entities like HUSD and DEI weren’t spared. HUSD dropped to an alarming $0.84, and DEI’s value tanked to a pitiful 54 cents. Frax and Neutrino USD also faced depegging episodes but have since shown signs of recovery.

These are not isolated incidents but rather symptoms of an industry grappling with the challenges of maintaining a stable peg. Whether it is market volatility, inadequate asset reserves, or algorithmic glitches, stablecoins find themselves under constant siege, battling an array of forces that threaten their very raison d’être.

In the specific case of USDR, the real estate backing adds another layer of complexity and vulnerability. Tangible’s planned liquidation of real estate assets to restore financial equilibrium rings the alarm bells for stablecoins relying on such volatile and illiquid asset classes for backing.

What the USDR crisis also establishes is a blueprint—though not necessarily a commendable one—for how to handle similar fiascos in the future. Tangible’s asset liquidation and compensation approach might serve as a precedent, for better or for worse, for how other issuers might deal with comparable crises.

As the dust settles on this latest catastrophe, the larger implications loom. Increased regulatory oversight seems inevitable, and stablecoin issuers might find themselves having to meet far stricter compliance standards. Until then, investors and users tread on shaky ground, left to ponder whether the stable in stablecoins is more of an aspiration than a guarantee.

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Maria Irene
Maria Irenehttp://ledgerlife.io/
Maria Irene is a multi-faceted journalist with a focus on various domains including Cryptocurrency, NFTs, Real Estate, Energy, and Macroeconomics. With over a year of experience, she has produced an array of video content, news stories, and in-depth analyses. Her journalistic endeavours also involve a detailed exploration of the Australia-India partnership, pinpointing avenues for mutual collaboration. In addition to her work in journalism, Maria crafts easily digestible financial content for a specialised platform, demystifying complex economic theories for the layperson. She holds a strong belief that journalism should go beyond mere reporting; it should instigate meaningful discussions and effect change by spotlighting vital global issues. Committed to enriching public discourse, Maria aims to keep her audience not just well-informed, but also actively engaged across various platforms, encouraging them to partake in crucial global conversations.

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