In a recent turn of events, the real estate-backed stablecoin, USDR, has experienced a significant depreciation in value, losing its peg to the U.S. dollar. This unexpected drop in value has sent shockwaves through the cryptocurrency community, raising questions about the stability of digital assets tethered to real-world holdings.
USDR, which stands for Real USD, was introduced as a pioneering concept in the world of cryptocurrencies. Unlike traditional digital currencies like Bitcoin and Ethereum, USDR was designed to be a stablecoin, promising a unique blend of stability and attractive returns. This stablecoin is backed by a combination of cryptocurrencies and real estate holdings, issued by the Tangible protocol, a decentralized finance project with the objective of tokenizing real-world assets, including housing.
Stablecoins, in general, are a category of digital currencies designed to maintain a stable value by being pegged to traditional assets like fiat currency, providing a secure and reliable means of transacting in the volatile world of cryptocurrencies.
The Depreciation Dilemma: Why Did USDR Lose Its Peg?
The sudden depreciation of USDR has left many wondering about the factors responsible for this plunge. According to data from a Dune analytics dashboard, a rush of redemptions is believed to be the main cause. As users clamored to exchange their USDR holdings for other assets, it strained the reserves and liquidity of the Tangible protocol.
USDR’s collateral assets played a crucial role in this depreciation. While the stablecoin’s value was primarily backed by illiquid assets like real estate, it also relied on liquid assets such as DAI, a decentralized stablecoin. During the redemptions, an astonishing $11.8 million worth of DAI was wiped out, severely impacting the coin’s stability.
The situation grew more complex when the collateralization ratio was examined. Excluding the project’s native token, TNGBL, USDR’s collateralization ratio fell below the required levels. However, considering the TNGBL token, it miraculously maintained a collateralization ratio of 102%, injecting a glimmer of hope.
The Controversial Self-Backing
One curious aspect that has raised eyebrows in the crypto community is the revelation that a portion of USDR is backed by itself. The stablecoin’s dashboard shows that 62,810 USDR is listed as its own collateral, a practice that has drawn skepticism and criticism.
Nevertheless, the Tangible protocol’s development team remains resilient in the face of adversity. They assert that the issue is fundamentally a liquidity challenge rather than a collapse of the assets that support USDR. They have committed to finding solutions to this problem, suggesting that the real estate and digital assets underpinning USDR are still intact and will be used to support redemptions.
Surprisingly, despite the staggering depreciation, the official website of the Tangible protocol reported on October 11 that its assets still exceed the entire market capitalization of the coin. A remarkable 14.74% of USDR’s collateral is in the form of Tangible (TNGBL) tokens, which are an integral part of the coin’s native ecosystem. The remaining 85.26% is purportedly collateralized by real-world housing and an “insurance fund.”
An update on $USDR
Over a short period of time, all of the liquid $DAI from the $USDR treasury was redeemed.
This lead to an accelerated drawdown in the market cap.
Combined with the lack of DAI for redemptions, panic selling ensued, causing a depeg.
We’re working on…
— Tangible 🏠💙 (@tangibleDAO) October 11, 2023
This incident raises questions about the resilience and security of stablecoins in the cryptocurrency ecosystem. The digital asset landscape has witnessed other stablecoins, like Circle’s USDC and Terra’s UST, facing peg issues in the past, highlighting the challenges in maintaining the stability of these financial instruments.
As the Tangible protocol endeavors to overcome this liquidity hiccup and regain stability for USDR, the broader cryptocurrency community will be watching closely. This episode serves as a reminder of the complexities and risks associated with real asset-backed stablecoins in the ever-evolving world of digital finance.
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