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USDN Once Again Loses Its Peg to the Dollar

On August 26, 2022, the algorithmic stable coin USDN lost its peg to the dollar once more. This time its value dropped to $0.90. This…

On August 26, 2022, the algorithmic stable coin USDN lost its peg to the dollar once more. This time its value dropped to $0.90. This happened despite attempts by Neutrino to improve the protocol and make it more reliable.

Neutrino USDN is an algorithmic stablecoin pegged to the US dollar. The stablecoin is supported by Waves. USDN is issued using a smart contract that uses WAVES tokens as collateral in a ratio of 1:1 against the US dollar. The market capitalization of the stablecoin is $647,063,715. Currently Neutrino USD is in 8th position in the rating of stablecoins from CoinMarketCap. At the time of writing, the price of USDN is $0.9 to the dollar.

For the first time this year, USDN lost its peg to the dollar in April, then its price dropped to $0.72, according to Coingecko, which was the lowest value in history. Subsequent depegs no longer looked so dramatic. In May, the price fell to $0.82, and in June to $0.93.

USDN price chart. Source: CoinMarketCap

Of course, it was not without criticism from crypto analysts, who pointed out the similarity of USDN with a stablecoin from Terra. But the founder of Waves, Sasha Ivanov, commented on this situation and explained why the mechanism of USDN is safer than the fallen UST:

“UST was backed by nothing — LUNA [the token] was burned to create UST. It was never intended to be backed up by anything other than the algorithm. The opposite is true of USDN. WAVES tokens are held in a smart contract to collateralize USDN.”

The loss of the dollar peg several times a year has become a strong motivation to work harder for the Neutrino team. The team proposed changes to the protocol and organized a vote, the results of which were shared by the team on Twitter.

Sasha Ivanov considers the vote of Vires Finance to be the reason for the loss of the peg to the dollar, as a result of which VIP-026 was accepted with the support of 75% of percent. Vires Finance also indicates that this decision affected the stability of USDN in its message on the Medium:

“After VIP-026 passed with more than 75% of the community in support, the proposal was implemented and $1M USDN was vested daily into depositor accounts. On Thursday, August 25th, USDN depegged from the dollar for a fourth time, and dropped below an acceptable range for about 33 hours. The depegging event stopped thanks to the Vires team’s swift actions to pause vesting and protect depositor’s interests”.

Unfortunately, even after work was done, the stablecoin lost its binding again. It is not currently clear what will happen next to USDN . Perhaps the team’s efforts to improve the protocol have not had enough time to work effectively and will produce results later. We hope that this will allow the stablecoin to stabilize and not lose its peg to the dollar.