Algorithmic stablecoins have had a rough year, starting with the de-pegging of UST to zero and the subsequent explosion of Terra’s LUNA token, which was used to back the asset. Algorithmic stablecoins are not fully collateralized and rely on different mechanisms to maintain parity, making them inherently fragile to market conditions.
The UST implosion created a ripple effect that led to the decoupling of another stablecoin, Magic Internet Money (MIM). Despite the fragility of algorithmic stablecoins, new projects like Cardano’s (ADA) Djed are still planning their launch, but that doesn’t mean the concept has improved since the crises at the beginning of the year.
Let’s take a look at the latest decoupling event in the cryptocurrency space.
Warning issued for WAVES and its stablecoin USDN
December 8th, The Digital Asset eXchange Association (DAXA), made up of the top five cryptocurrency exchanges in Korea, has issued a warning about Waves and its token (WAVES).
The warning comes after the WAVES-backed stablecoin USDN de-pegged and has so far been unable to re-peg to $1 in over 180 days. This means that the USDN protocol can settle WAVES through the automatic arbitration process in an attempt to regain parity. On December 8, the USDN was 16% below parity.
The DAXA warning has prompted Upbit to delist both WAVES and USDN. The delisting, combined with the DAXA warning, seems to be influencing the price decline for WAVES and USDN.
$WAVES and its stablecoin $USDN both crashing.
Upbit delisting WAVES with a strong “investor warning” lmao.
Also hearing rumors of exit scam.
For as long as I can remember this project has been a total shitshow. pic.twitter.com/mnPv4aCik9
— Byzantine General (@ByzGeneral) December 8, 2022
WAVES and its USDN stablecoin fall.
Upbit removes WAVES with a strong “investor warning” lmao.
I also hear exit scam rumors.
For as long as I can remember, this project has been a total sh*t show.
Algorithmic stablecoins are not the only ones to disassociate. Ongoing concerns about Tether (USDT) backing and its overall solvency continue to fuel depreciation fears among all levels of investors.
Over the years, USDT has lost its peg, but never to the degree seen with UST and USDN.
As the community continues to reel over algorithmic stablecoins, regulators are taking notice and prioritizing regulation of the space.
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