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The unsettling depreciation of USDR stablecoin: A deep dive into liquidity issues 

TL;DR

  • USDR, a stablecoin issued by the Tangible protocol, experienced a drastic depeg to $0.53 per coin due to a liquidity crisis, triggered by a rush of redemptions and subsequent draining of Dai from its treasury.
  • Despite losing nearly 50% of its value, the Tangible protocol team assures that the depreciation is a temporary liquidity issue and commits to leveraging the real estate

In an unexpected turn of events, the real estate-backed stablecoin, USDR, witnessed a significant depeg from its standard value, plummeting to a mere $0.53 per coin on October 11. The Tangible protocol, a decentralized finance (DeFi) project that issues USDR and aims to tokenize tangible assets like housing, found itself amidst a storm as a cascade of redemptions led to a severe drainage of liquid assets, notably Dai, from its treasury. The sudden depreciation was not only a shock to the investors but also posed a severe test to the stability and reliability of stablecoins in the volatile cryptocurrency market.

USDR, which is primarily traded on the Pearl decentralized exchange (DEX) operating on the Polygon network, experienced a surge of selling around 11:30 a.m. UTC, which drove its price down to approximately $0.5040 per coin. Although it managed a slight recovery to around $0.53 shortly afterward, the incident raised eyebrows and instigated a flurry of discussions regarding the stability and sustainability of stablecoins, particularly those backed by a mixture of cryptocurrencies and real-world assets.

Unraveling the underlying liquidity crisis and market panic

The Tangible protocol, in an attempt to shed light on the situation, elucidated via a tweet on October 11 that the rapid redemptions of all the liquid DAI from the USDR treasury triggered an accelerated drawdown in market capitalization. This, coupled with the unavailability of DAI for further redemptions, sparked panic selling, thereby exacerbating the de-pegging situation. The liquidity issue, as per the project team, is temporary and has momentarily hampered redemptions, but the real estate and digital assets that back USDR are still intact and will be utilized to support future redemptions.

Despite the coin losing nearly half of its value, the developers have assured that they are crafting “solutions” to navigate through the problem, emphasizing that the underlying issue is primarily related to liquidity. The official website of the app, even after the loss to the treasury, stated on October 11 at 9:57 pm UTC that its assets still surpass the entire market cap of the coin, providing a glimmer of hope amidst the chaos.

The stability of stablecoins: A question mark?

The incident with USDR brings to the forefront the inherent risks and challenges faced by stablecoins, which are theoretically intended to always be worth $1 on the open market. However, under extreme market conditions, they sometimes lose their peg, causing disruptions and potentially leading to a loss of investor confidence. The collateral of USDR consists of 14.74% of Tangible (TNGBL) tokens, with the team asserting that the remaining 85.26% is collateralized by real-world housing and an “insurance fund.”

The USDR debacle is not an isolated incident in the cryptocurrency realm. For instance, Circle’s USD Coin, the sixth-largest cryptocurrency by market cap as of October 11, experienced a dip to $0.885 per coin on March 11 due to several banks in the U.S. going bankrupt. However, it managed to regain its peg on March 14. Another stablecoin, Terra’s UST, lost its peg in May and has not recovered since valued at $0.01 per coin as of October 11, according to data from CoinMarketCap.

Conclusion

The USDR incident underscores the importance of robust mechanisms to ensure the stability of stablecoins, especially amidst a crisis. It also highlights the necessity for transparent communication from project teams during tumultuous times to maintain investor trust. As the Tangible protocol team vows to provide solutions and assures that the real estate and digital assets backing USDR will be used to support redemptions, the cryptocurrency community watches closely, with the incident serving as a stark reminder of the volatility and risks inherent in the digital asset space.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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Haseeb Shaheen

As a Web Researcher and Internet Marketer, Haseeb Shaheen delivers relevant valuable content for audiences. He focuses on financial and crypto market analysis, as well as technology-related areas that help people change their lives.

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