In an effort to prevent another stablecoin collapse and crypto transition, the NEAR Foundation is taking measures to support holders of the USN.
On October 24, the NEAR Foundation announced that it had set aside $40 million for a ‘USN Security Program’ grant.
The fund is designed to ensure USN holders and users can redeem the stablecoin on a 1:1 basis with USDT.e.
The move comes after a separate announcement by Decentral Bank (DCB) on October 24 that it was shutting down USN, an independent stablecoin based on the NEAR blockchain.
Under-collateralized stablecoins eliminated
The USN is an algorithmic stablecoin that is soft to the dollar and backed by a reserve fund consisting of NEAR and USDT. Remarkably, USN has maintained its peg, falling only slightly over the past few days.
DCB, which launched the first stablecoin for the NEAR ecosystem in April, said low-collateral exposure occurred in the first half of 2022. This resulted in a collateral difference of approximately $10 million, which has increased to a shortfall of $21. million currently.
It added that the stablecoin has faced a number of issues over the past few months due to changes in market sentiment from recent high-profile events:
“As a result of these issues, we have made the difficult decision to close the USN project in a controlled and responsible manner to ensure that USN holders are protected.”
The NEAR Foundation reacted quickly to prevent panic and the collapse of its own native token as users feared another LUNA moment. It was found that the algorithmic mechanism failed “during extreme market conditions”, resulting in a lack of collateral.
It states that the $40 million gap has been settled and is not closely linked to the token price in any way. This is because it has never had a hardcoded Burn or Mint relationship with USN.
Security firm PeckShield observed that the total value locked in NEAR has come down since the DCB withdrew its liquidity. DeFiLlama is currently reporting a 45% drop in TVL over the last 24 hours to $136 million.
near token unaffected
Local tokens have weathered the storm so far, despite the outflow of collateral from the ecosystem. NEAR was trading up 2% at $2.98 at the time of press.
However, in this recession the bears sank their teeth NEAR. It is currently down 85% from its January all-time high of $20.44.
NEAR is a proof-of-stake layer-1 blockchain that harnesses the high throughput from its sharding system.
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