Another Stablecoin Loses its Peg, Plummets in Value
A stablecoin called USDR, issued by Tangible, experienced a significant loss in value on Wednesday. The token, which is designed to maintain price parity with the U.S. dollar, dropped from $0.996 to just $0.50 within hours.
Causes of Stablecoin Depreciation
Stablecoins typically lose their peg due to factors such as instability in asset reserves or an inability to fulfill redemption requests from holders. Tangible’s CEO, Jay Singh, acknowledged the situation and mentioned plans to address the issue through real estate liquidations and replenishing DAI reserves.
Unusual Reserve Composition
USDR stands out with its reserve composition, which includes tokenized real estate. In addition to acting as a substitute for the U.S. dollar, the coin offers yield through rental revenue generated from these real estate holdings.
Different Approaches to Reserves
Popular stablecoins like Tether (USDT) and USD Coin (USDC) are backed by cash and short-term US debt. Tangible’s Proof of Reserve system shows that they still hold over $49 million in reserves, enough to back the 45 million USDR tokens in circulation.
Recollateralization Mechanism
Tangible’s website explains that if the collateralization ratio falls below 100%, 50% of the rental yield will be redirected to recollateralize the asset and ensure full backing for Real USD.
The Regulatory Landscape
In July, the U.S. House Financial Services Committee passed legislation requiring stablecoin issuers to back their tokens solely with cash, cash equivalents, and Treasury bills.
Hot Take: The Challenges of Stablecoins
The recent depreciation of USDR highlights the challenges faced by stablecoins in maintaining their peg to the U.S. dollar. The use of unconventional reserve compositions, such as tokenized real estate, can introduce additional risks. As regulators scrutinize stablecoins and propose stricter requirements, issuers must ensure robust collateralization mechanisms to prevent depegging and protect token holders.
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