Algorithmic stablecoins have had a rough year, beginning with the de-peg of the Terra US Dollar (UST) to zero and the subsequent crash of Terra’s LUNA token, which was used to back the asset. are not fully collateralized and rely on various mechanisms to maintain their peg to fiat currency, making them inherently vulnerable during market volatility.
The implosion of UST created a domino effect that caused the de-peg of another stablecoin, Magic Internet Money (MIM). New projects like Djed by Cardano are still planning to launch despite the algorithmic stablecoin’s vulnerabilities, which means the concept has improved since the crisis we saw earlier this year. It is not intended to
Let’s take a look at the latest depeg events in the crypto space.
WAVES and its USDN Stablecoin Issued Warning
On December 8th, the Digital Asset eXchange Association (DAXA), which consists of five major cryptocurrency exchanges in South Korea, warning About Waves and its WAVES (WAVES) token.
The warning comes after the WAVES-backed stablecoin USDN has been de-pegged and has so far failed to re-establish the $1 peg for over 180 days. This means that the USDN protocol may liquidate his WAVES through an automated arbitrage process in an attempt to get the peg back. On December 8, USDN fell 16% below its peg.
Upbit has delisted both WAVES and USDN following a warning issued by DAXA. The delisting, coupled with the DAXA warning, appears to have played some role in the price declines currently seen in WAVES and USDN.
$WAVES and its stablecoin $USDN both crash.
Upbit lmao to delist WAVES with strong “investor warning”.
We also hear rumors of exit scams.
This project has been complete shit for as long as I can remember. pic.twitter.com/mnPv4aCik9
— Byzantine General (@BizGeneral) December 8, 2022
It’s not just algorithmic stablecoins that are depegging. The constant concerns about Tether (USDT) backing and its general solvency continue to raise concerns among investors at all levels.
Over the years, USDT has lost its peg, but not to the extent that we have seen with UST or USDN.
As the community continues to pull away from algorithmic stablecoins, regulators are paying attention and prioritizing regulation of the space.
The views, thoughts and opinions expressed herein are those of the authors only and do not necessarily reflect or represent the views or opinions of Cointelegraph.
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