Near Foundation Urges Winding Down USN Stablecoin, Funds a $40M Backstop

The foundation is setting aside the funds for a "protection programme," which it says is equal to the amount of a "collateral gap" associated with the undercollateralization of the USN project.

AccessTimeIconOct 24, 2022 at 3:36 p.m. UTC
Updated Oct 25, 2022 at 6:23 p.m. UTC

Lyllah Ledesma is a CoinDesk Markets reporter currently based in Europe. She holds bitcoin, ether and small amounts of other crypto assets.

The Near Foundation, an organization supporting the blockchain of the same name, urged the winding down of the USN stablecoin and announced it's setting aside $40 million to fund a "USN Protection Programme."

USN is a Near-native stablecoin, which was created and launched by Decentral Bank (DCB) in April, according to a statement from the Near Foundation on Monday.

The foundation said USN is an independently operated community-run project, and that it had no direct financial assistance from the Near Foundation.

According to the statement, DCB recently contacted the Near Foundation to advise it that USN had become undercollateralized, a condition that is "inherent" with algorithmic stablecoins, especially in "extreme market conditions." DCB further confirmed, according to the foundation, that there was also double-minting of USN, which contributed to the undercollateralization.

"The Near Foundation is recommending that USN should wind down. The Foundation encourages DCB to do this at the earliest opportunity in a responsible and professional manner that protects all of its users," Near wrote.

In order to protect users and to facilitate the winding down of USN by DCB, the Near Foundation has elected to set aside $40 million, according to the statement. This will be available via a grant for the creation of the "USN Protection Programme."

"With the USN Protection Programme, Near Foundation understands that USN is now overcollateralized, as there is also approximately 5.7 million NEAR tokens in the DCB treasury, which the foundation expects DCB to donate to the Near community," according to the statement.

In an interview with CoinDesk, Near Foundation Chief Executive Officer Marieke Flament said her organization has been focusing on being transparent and communicating with the community on what has happened.

“We are in a regulatory landscape where the crypto space has a bad reputation and so does anything stablecoin-related," said Flament. "It’s about working through this and putting our values of transparency and making sure users are protected."

Flament said she is confident that as the ecosystem grows and matures, and with recent new hires, this type of intervention should not be required in the future. "As an ecosystem we can learn from this and prevent it in the future," said Flament.

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Lyllah Ledesma is a CoinDesk Markets reporter currently based in Europe. She holds bitcoin, ether and small amounts of other crypto assets.

CoinDesk - Unknown

Lyllah Ledesma is a CoinDesk Markets reporter currently based in Europe. She holds bitcoin, ether and small amounts of other crypto assets.