A $40 million collateral gap has forced the shutdown of the USN stablecoin, which was launched in April 2022 by the NEAR Protocol.
Tokens Destroyed, TVL Drop
The USN stablecoin was issued by the Decentral Bank DAO, which announced on October 24 that it would be wrapping up the project. The move has been attributed to the fact that the USN stablecoin has become undercollateralized by around $40 million. Speaking on the matter, the NEAR Foundation released a statement saying,
“This collateral gap of $40m USD is fully covered by the USN Protection Programme. The NEAR Foundation is recommending that DCB wind down USN in an orderly manner…The NEAR Foundation is confident that as the ecosystem grows and matures, this type of intervention should not be required in the future.”
The Decentral Bank DAO has also withdrawn its USN liquidity from the decentralized exchange Ref.finance by destroying 40 million USN and resulting in a 50% drop in TVL for the DEX in just 24 hours. According to DeFi TVL aggregator DeFi Llama, the TVL of the NEAR network dropped from $247 million to $136 million, whereas that of Ref.finance’s dropped from $220 million to $110 million.
Redemption Program For Tokenholders
The DAO has permanently stopped mining new USN. Existing token holders have been advised to swap their tokens for USDT through the USN Protection Programme. For this purpose, the tokenholders will need to undergo KYC and Anti-Money Laundering checks, following which they will be able to use the dApps of Decentral Bank or Aurora Labs to redeem their USN tokens for USDT. As of now, the Decentral Bank DAO has 5.7 million NEAR tokens (approximately $17 million) in its reserves, which it has pledged to donate to the NEAR community. Tokenholders will have the next 12 months to avail of this redemption program.
DCB’s Attempts To Prevent Decollateralization
The USN was launched in April 2022 as a partly algorithmic, decentralized stablecoin on the NEAR Protocol mainnet, led by the Decentral Bank DAO. However, the debacle of Terra’s algorithmic UST stablecoin in May created concerns over similar risks affecting the USN coin. This pushed the Decentral Bank to make USN solely mintable against USDT deposits. However, this proved to be in vain as the price of USN dropped to nearly $0.98 in early July. It got further undercollateralized as the NEAR token price dropped further in August. As a response to the undercollateralization, the Decentral Bank DAO withdrew the $40 million from the Ref.finance pool and destroyed the tokens, which then led to the loss in total value locked.
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