TrueUSD Depegged Below $0.97 as FRAX Prepares Ethereum Rollup Launch
Over the past 24 hours, TrueUSD, a stablecoin associated with Tron founder Justin Sun, has depegged and fallen below $0.97. Despite recent reports confirming TrueUSD reserves, outflows of around $141 million have caused the depegging.
How Stablecoins Like TrueUSD Lose Their Peg
TrueUSD is currently the fifth-largest stablecoin with a market capitalization of $1.9 billion. However, its price has not yet recovered to $1. Binance played a role in driving up the use of TrueUSD last year by offering free trading for all TrueUSD pairs.
Stablecoins like TrueUSD rely on reserves to maintain their peg to fiat currency. When someone wants to exchange their tokenized asset for cash, the stablecoin issuer must have liquid assets available to fulfill the withdrawal request.
Why Accurate TUSD Reserves Are Important
If there is increased demand for a stablecoin, market volatility, or a lack of confidence in the issuer’s reserves, the value of the stablecoin can deviate from its intended peg. In response to allegations of insufficient collateralization, TrueUSD upgraded its reserve system.
In contrast, FRAX, one of the largest stablecoins, relies on collateral and an algorithm to maintain its value at $1. FRAX issuer Frax Finance will soon launch a new rollup called Fraxtal, which will be deployed by decentralized stablecoin exchange Curve.
Hot Take: Verifying Stablecoin Reserves Is Crucial for Trust
Verifying the reserves of stablecoins like TrueUSD is crucial for maintaining trust in these digital assets. Without accurate reserves, stablecoins can lose their peg and create uncertainty in the market. It is important for stablecoin issuers to have sufficient liquid assets to fulfill withdrawal requests and ensure the stability of their tokens.
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