It has been a rough road to navigate for algorithmic stablecoins in 2022. We are all familiar with the collapse of the Terra ecosystem and the depegging of TerraUSD. And the fallout from this collapse has been devastating with depegging, price crashes and bankruptcies.
Yet, another algorithmic stablecoin is readying its launch - Cardano's Djed. But does that fact translate into safety for the algorithmic stablecoin markets? A brief look into Waves-backed algorithmic stablecoin USDN (Neutrino) provides us insight to answer this question.
Strike One: On December 8, 2022, the Digital Asset eXchange Association (DAXA) issued a warning concerning WAVES resulting from the failure of USDN to regain peg after losing it more than 180 days prior. This is a concerning event in that the USDN protocol calls for the liquidation of WAVES through auto-arbitrage to regain peg. Nonetheless, the one year price chart amply demonstrates this loss of peg:
As the chart demonstrates, USDN as an algorithmic stablecoin has a long history of unstable trading and presently is trading at $0.8659 - which is $0.1341 below peg.
Strike Two: On December 8, 2022, DAXA (Digital Asset eXchange Association (DAXA) issued an investor warning concerning WAVES and the WAVES token. The DAXA warning sparked a responsive warning from the Upbit Exchange: "Upbit has been monitoring the price trend and deemed that there’s risk of unexpected investor’s loss due to WAVES value volatility." [Notariya, H. Why Neutrino USD (USDN) Lost Its $1 Peg, but Is It the Next UST?. (Accessed December 10, 2022)]. According to a report by Be-in-Crypto, Upbit will monitor the WAVES situation and if the depeg is not resolved, Upbit will take further action delisting WAVES and USDN.
If in reading this your memory is jogged back to the TERRA/LUNA/UST debacle, you are not alone. Yet in issuing the investor warnings, fuel may have been added to the fire, increasing the negative volatility of both WAVES and USDN. Only time will tell if this situation may mushroom into another full-blown TERRA type collapse.
INFORMATIONAL SOURCES
- CoinMarketCap. Neutrino USD to USD Chart. (Accessed December 10, 2022).
- Notariya, H. Why Neutrino USD (USDN) Lost Its $1 Peg, but Is It the Next UST?. (Accessed December 10, 2022).
- Nwobodo, C. Waves down 12% as Upbit issues investment warning. (Accessed December 10, 2022).
- White, K. Waves-backed stablecoin USDN drops further after regulator warning and exchange delisting. (Accessed December 10, 2022)