As crypto markets rebound following the consistent bullish BTC Spot ETF approval rumours, and stablecoins consequently acquire more trading volume and liquidity, here at Stablecomp we would like to report on one event which has, to an extent, gone under the radar of many Blockchain users and investors: Polygon based USDR, or Real US Dollar, depegging from its original, dollar tied value, to as little as 0.49$.
Tangible DAO, which is behind the product, blames a strictly liquidity connected issue, and promises a relatively quick fix to the negative news. The original statement regarding an eventual depeg, which has been seemingly confirmed by Tangible’s recent statements, read as follows:
“If the collateralization ratio ever drops beneath 100%, then 50% of the rental yield will be automatically redirected to the treasury, recollateralizing the asset and ensuring Real USD is always fully backed.”
Though it is also worth noting that almost two weeks have passed from USDR’s depeg, and its value stands at $0.56 on the dollar. Without further ado, let us dive into what made Real USD vulnerable, and where it’s potential lies.
USDR’s structure
Tangible promised a particular, though seemingly secure and innovative model for USDR, and even through the depeg, the project has never appeared to steer its word away from its good faith, rather falling from grace because of the hardships of calculating an original system for one of the most complicated Blockchain products out there.
Most of the risk tied to a stablecoin, in the eyes of its users, refers to a potential depegging, which implies the digital asset losing its stable value and usually sinking to never foreseen lows. The main cause for a depeg can be found in the project’s reserves: seeing as stable value can only derive from assets that users can swap, with a 1:1 ratio, with their digital counterpart, stablecoins collateralize their token with underlying currency tied goods. For example, Tether (USDT) holds over $70BIL in U.S. Bonds, alongside a variety of different USD tied assets, to make sure it holds its peg.
Tangible planned to launch a dominating, mostly real estate backed stablecoin: the advantage of such a structure lies in the often growing value of this market, which allows for the project to, depending on its market capitalization which dictates how much real estate is purchased to back the token, pay out yearly yield to its holders, in addition to providing a stable, dollar based value.
What also has to be considered is an important variable endogenous to a stablecoin’s reserves, which is how many of these reserves are consistently there for user trading. In addition to being fully backed by stable assets, a stablecoin must have a good portion of these assets available for immediate user redemption. If, for example, a user wants to sell USDR and exchange it for real dollars or any other asset, the project must make sure he can do so without causing any liquidity issues for the protocol, as a centralized exchange would when market making.
USDR’s plan was simple: holding up to a supposed 50% of its reserves in DAI stablecoin to its from the start, other than real estate and the Tangible DAO token, would allow for users to withdraw and exchange as much as 50% of USDR’s market cap at any time, without the project having to face reserve issues. The plan read as follows:
“Real USD is pegged to the dollar so there's no volatility in the price. Further, up to 50% of the backing is held in DAI, meaning 1:1 redemptions are always available which ensures peg stability. If the collateralization ratio ever drops beneath 100%, then 50% of the rental yield will be automatically redirected to the treasury, recollateralizing the asset and ensuring Real USD is always fully backed."
During the second week of October though, something stopped working. Warning signs were evident, as the peg never truly reflected the dollar 1:1, remaining mostly around the $0.90 mark: then, as Tangible reported, exceptionally high USDR selling by users caused the project to drain its DAI reserves. This obviously caused what in the traditional finance world would be known as a bank run, with no more assets available for USDR withdrawal, and its subsequent depegging.
Holders and USDR’s future
The situation quickly ran amok, with one trader incredibly exchanging $113,000 for a grand total of zero USDC, per CoinTelegraph. Users asked for $10 Million in redemptions on the 12th of October. We quickly discovered that other than DAI, only 15% of USDR was backed by Tangible tokens, while the rest of the stablecoin was collateralized through real estate, though tokenized:
As analyst Tom Wan explained, these assets had been tokenized through Ethereum standard ERC-721, which means that they couldn’t be fractionized to allow for user redemption.
Many holders are now left with many questions and hope, as Tangible Finance has promised to bring back USDR’s peg and 1:1 redemption.
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Giorgia Bagnasco