Decentral Bank, the DAO behind the Near-native USN stablecoin, is unwinding the project, it said on Oct. 24.
The reason: USN has become undercollateralized by around $40M.
Decentral permanently halted new USN minting. USN holders can redeem their tokens for USDT through the USN Protection Programme, which is backed by a grant from the Near Foundation.
“This collateral gap of $40m USD is fully covered by the USN Protection Programme,” Near Foundation said in a statement. “The NEAR Foundation is recommending that DCB wind down USN in an orderly manner.”
Tokenholders can now redeem their USN using the dApps of Decentral Bank or Aurora Labs provided they undergo Know-Your-Customer and Anti-Money Laundering checks. The redemption program will be live for 12 months.
Decentral Bank’s reserves hold 5.7M NEAR ($16.7M). Decentral said it will donate the NEAR tokens to the Near community.
Decentral also withdrew its USN liquidity from the decentralized exchange, Ref.finance, destroying 40M USN and contributing to a 50% drop in Ref.finance’s total value locked over 24 hours.
The TVL of the Near’s network dropped to $136M from $247M amid the transaction, according to DeFi Llama. Ref.finance’s TVL is also down 50% from $220M in 24 hours.
When USN was launched in April 2022 as a partly algorithmic stablecoin. But the spectacular collapse of Terra’s algorithmic UST stablecoin in May showed the risk of similar projects becoming undercollateralized, prompting Decentral Bank to make USN solely mintable against USDT deposits.
Despite Decentral’s efforts, the price of USN dropped to nearly $0.98 in early July. The stable token then became undercollateralized as the price of NEAR suffered heavy drawdowns from August.
Decentral Bank said it responded to USN’s undercollateralization by withdrawing around 40M USN from Ref.finance’s liquidity pool and removing the tokens from supply.
“DCB recently contacted the NEAR Foundation to advise it that USN had become undercollateralized due to it originally being an algorithmic stablecoin,” said Near Foundation. “DCB has also confirmed that there was some double-minting of USN, associated with the v1 algorithm, which contributed to the undercollateralization.”
The Near Foundation added that it will develop robust community standards and guardrails concerning stablecoins. “The NEAR Foundation is confident that as the ecosystem grows and matures, this type of intervention should not be required in the future,” it said.