Crisis in Terra's UST Stablecoin Spreads to Neutrino USD on Waves Protocol

Algorithmic stablecoins are under pressure after Terra's UST lost its $1 peg.

AccessTimeIconMay 11, 2022 at 5:24 p.m. UTC
Updated May 11, 2023 at 6:13 p.m. UTC

Neutrino USD (USDN), an algorithmic stablecoin within the Waves blockchain ecosystem, slipped below its U.S. dollar peg after the largest algorithmic stablecoin, TerraUSD (UST), tumbled early Wednesday to as low as 23 cents.

  • USDN, which is supposed to maintain its price at $1, dropped 12% to 88 cents on Wednesday, according to data provider Messari. The Waves platform's native token, WAVES, fell 26% in the last 24 hours to $9.
  • USDN is the stablecoin of the Waves protocol and is similar by design to the Terra blockchain's algorithmic stablecoin, UST. Users need to lock the WAVES token into Neutrino's smart contracts to mint USDN, while USDN redemptions destroy the stablecoin to unlock WAVES supply, thus balancing supply and demand and keeping the stablecoin at the peg.
  • After the implosion of UST – which had a market capitalization of $18 billion before losing its peg and which crumpled the Terra ecosystem causing turmoil in the broader cryptocurrency markets – smaller algorithmic stablecoins saw increased pressure and their prices started to wobble.
  • "Clearly you are seeing the UST contagion spreading," Messari analyst Dustin Teander told CoinDesk. "The Curve pool for USDN-3pool is now imbalanced with 92% being USDN. We saw the same sort of ratios play out on UST's Curve pools. This is usually a good sign the peg is under pressure and it requires new deposits to restore the balance."
  • Crypto research firm Delphi Digital wrote in its daily report on Monday that while UST received most of the attention relating to de-pegging, smaller algorithmic stablecoins such as FRAX, FEI and USDN are facing the same danger. "It remains to be seen whether each project will be robust enough to maintain its peg during these volatile times," the report said.
  • This is the second time in 40 days that USDN's price slipped significantly from the dollar peg. On April 4, USDN dropped by double-digit percentage points after users accused the platform of manipulating the price of the WAVES token through its decentralized finance (DeFi) lending platform Waves CEO Sasha Ivanov dismissed the accusations and blamed short sellers – traders who bet on profiting on asset's price going down – for USDN's woes.
  • At press time, USDN was changing hands at 90 cents, but on the crypto exchange KuCoin, it traded at 79 cents, according to data from charting platform TradingView.


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Krisztian  Sandor

Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.

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