- The Near Foundation has ordered the closure of v1 of its USN stablecoin after it was found to be undercollateralized
- USN v1 is an algorithmic stablecoin that was technically disbanded in April, although it is still in use
- Near Foundation has ordered the project to be scrapped after a $40 million collateral gap was found
The Near foundation has announced that a prior version of its algorithmic stablecoin, USN, will be shuttered after its issuer warned that it was undercollateralized. USN was launched in April 2022 when the likes of Terra USD were riding high and algorithmic stablecoins were all the rage, but following the collapse of the crypto market (caused heavily by Terra USD’s collapse), USN changed models to a collateralized system. Now, its former incarnation, which was still operating, will be shut down.
USN v1 Launched Three Weeks Before the Terra USD Collapse
USN v1, a Near-native stablecoin, was created and launched by Decentral Bank in April this year, an independently operated community-run project which was not directly connected to the Near protocol. Just three weeks later, Terra USD lost its dollar peg and set the entire market into a tailspin, leading to Near taking the decision to move to a collateralized model (USN v2) in June.
Given that it still had some holders however, USN v1 was forced to continue, despite the known risks to the algorithmic model. In an announcement posted yesterday however, Near revealed that USN v1 was in trouble:
“DCB recently contacted the NEAR Foundation to advise it that USN had become undercollateralised due to it originally being an algorithmic stablecoin (v1) susceptible to undercollateralisation during extreme market conditions. DCB has also confirmed that there was some double-minting of USN, associated with the v1 algorithm, which contributed to the undercollateralisation.”
$40 Million Collateralization Gap
These issues have led to a $40 million collateral gap, which Near Protocol has agreed to fill through a USN Protection Programme, and Near demanding that “DCB burns/destroys all the double-minted USN and promptly winds down the project in an orderly manner.”
The announcement is another blow to the concept of algorithmic stablecoins, which are supposed to be balanced by market forces rather than collateral, and which the U.S. wants to ban outright.
