Stablecoins, which aim to facilitate cryptocurrency trading, have marked the industry with depeg and collapse scenarios in recent years.
The crypto revolution started by Satoshi Nakamoto gained global popularity, led by Bitcoin. Cryptocurrencies have continued to evolve and be adopted over the years. Years ago, Bitcoin or Ethereum parity was used to buy any cryptocurrency. Someone who wanted to buy A Coin was trading in A/BTC parity. In the next period, stablecoins emerged with the aim of integrating fiat coins into cryptocurrencies more easily. However, this innovation brought with it many problems.
The Beginning of Stablecoins and the Advancement of Stablecoins
Stablecoin products have gained popularity by integrating the traditional financial system with the crypto ecosystem. The first stablecoins produced in this medium were BitUSD and NuBits.
BitUSD emerged in 2014 as a decentralized cryptocurrency indexed to the US dollar. Behind this first stablecoin was the popular crypto project BitShares. BitUSD collateral backed by BitShares assets.
Another first-time stablecoin, NuBits, was created by the decentralized Nu network, which aims to rival the traditional financial system. NuBits also sought to provide collateral with asset reserves.
Various improvements and updates have been made to stablecoins over the years. Although the first products of the field, NuBits and BitUSD, were supported by all kinds of secure methods, up to bank assets, they could not show continuity.
In the early stage of stablecoins, as adoption was low, investors continued to buy cryptocurrencies with BTC and ETH pairs. The popularization phase of stablecoins took place thanks to Tether (USDT) and USD Coin (USDC).
As the interest in cryptocurrencies increased, there was a noticeable increase in the amount of fiat money entering the industry. The crypto industry has begun an influx of dollars. In this case, stablecoins came to the fore for investors to trade crypto more easily. USDT, the most actively used stablecoin, took the leadership seat.
Stablecoin Crash and Stablecoins Collapsing
The tenfold increase in the money circulating in the crypto money market has made stablecoins stand out among the transaction pairs. Many investors have traded via stablecoins because it is fast and less costly.
With the impact of the crypto bull market, the demand for stablecoins has reached its peak. This puts USDT and USDC among the top 10 cryptocurrencies by market cap.
But behind the scenes of this demand was the collateral and backing of stablecoins. In the crypto bull market, most of the investors didn’t care about the working logic of stablecoins. In fact, many investors did not even consider what would happen in the crypto industry if any stablecoin product crashed.
Stablecoins pegged to fiat currencies used a variety of methods to stay at the $1 peg. The traditional and most preferred method has been to collateralize with crypto assets in order to maintain decentralization. Many stablecoins have chosen to be collateralized with their own decentralized assets.
Several crypto projects have also built their own ecosystem, making stablecoins the heart of it. Terra, Waves, NEAR, Kava used this method frequently. Terra’s system has been to support the UST stablecoin with the Luna coin’s equity. The two cryptocurrencies acted in tandem.
But stablecoins’ long-term planlessness and pessimistic market conditions have brought many crashes.
1- TerraUSD (UST)
Terra tried to do innovative work to develop and expand its ecosystem. The project team acted widely to stand out as a payment method and investment tool. As an algorithmic stablecoin, UST has become the backbone of the ecosystem. UST has a different structure from other stablecoins. Behind the popular stablecoin was Luna, the cryptocurrency of the Terra ecosystem.
Assets in Luna were cited as collateral for UST. A bullish Luna side would support the UST and money entering the UST side would push the Luna price higher. What started out as a great idea turned into a huge disaster. Because the bear market and hacking attacks were enough to bring down the entire ecosystem.
By May 2021, the worst-case scenario for the UST broke out. UST dropped to around $0.96 in depeg in early May. Many crypto investors and analysts thought it was a minor shake-up. According to the crypto market, UST would be fixed to $1 again shortly.
However, on May 12, the UST suffered a major collapse. The source of the collapse was that it was moving in parallel with Luna due to its algorithmic structure. The 99 percent depreciation of Luna, the most used cryptocurrency, also brought UST to the bottom. This Terra crisis also caused the cryptocurrency market to enter a bear trend that will not improve.
The Terra crisis at that time took a big place on the agenda as the crypto collapse. 35 percent of current assets in the cryptocurrency industry evaporated after this collapse.
US Treasury Secretary Janet Yellen explained at her meeting that the collapse of TerraUSD (UST) poses “risks to financial stability” and that the audit should be planned.
UST has now ceased to be a stablecoin and continues to exist as a normal cryptocurrency.
2- Neutrino USD (USDN)
Decentralized cryptocurrency project Waves has launched Neutrino USD pegged to the US dollar as its ecosystem product. USDN started its service in an algorithmic structure, just like in the case of Terra. Attempted to provide USDN collateral with Waves assets. When looked at, the operation of USDN and UST stood out as exactly the same.
However, the unsafe atmosphere brought about by the events on the UST side especially hit the USDN, which is just like the UST. USDN became depeg after many investors fled. On the other hand, due to the effect of the crypto bear market, the Waves price also dropped. The fall of Waves led to the USDN price falling as well.
Serving as a stablecoin, USDN currently moves at $0.5. The stablecoin, whose daily volume does not exceed 600 dollars, may become a thing of the past. Investors prefer to stay away from this project for now, as it is not reliable.
In the reserves of the stablecoin service are Waves ecosystem products. In a possible collapse scenario, the entire Waves ecosystem could be affected.
3- NEAR Stablecoin (USN)
The decentralized smart contracts platform NEAR has launched a stablecoin to improve its ecosystem and have a strong network structure.
USN took the UST potential and FRAX reliability as its launch purpose. USN, which emerged to develop and improve the NEAR ecosystem, was seen as a new method to increase liquidity.
The USN took UST as an example with its algorithmic structure. While this might seem intriguing at first, the crash of UST changed everything. Stablecoin is fully secured by NEAR ecosystem assets. In the project, which is intended to be fixed to the dollar, strong studies were planned with staking and liquidity ratios.
However, the great collapse experienced on the UST side turned the arrows of fear and distrust towards the USN. Although USN showed a solid image, it could not escape the fud current.
Popular cryptocurrency NEAR’s stablecoin USN has dropped to $0.88 in depeg. This stablecoin is not listed by any major centralized exchange.
4- Kava Stablecoin (USDX)
Kava, a DeFi loan platform, started its services with the aim of opening different income doors to its users and investors. Kava allowed users to borrow and lend with USDX stablecoin and earn interest by staking the system.
Working as a decentralized bank, Kava has put a lot of effort into its stablecoin product, USDX. USDX, pegged to the US dollar, did not receive enough attention from its users.
Backed by Ripple and Maker DAO, Kava failed to suffice its ecosystem products. The popular project, which wants to increase its validators on the mainnet side, wants to be supported by USDX. However, the collapse experienced on the UST side also affected the USDX side as the team behind it could not give enough confidence.
USDX declined from the stable dollar rate to $0.82 in depeg. Stablecoin is not attracting much attention with daily volume of $200,000. USDX is not listed on any exchange other than the Kava ecosystem.
5- Huobi Abandoned Stablecoin (HUSD)
Popular cryptocurrency exchange Huobi has backed HUSD to create usage space and a source of liquidity on its centralized exchange. HUSD, which emerged on the Ethereum network, came to the fore with its price pegged to the US dollar and stablecoin service.
HUSD, which was revealed by Stable Universal in 2018, was listed with the support of the Huobi exchange. The initial purpose of the popular stablecoin was to be a combination of four different stablecoins. PAX, TUSD, USDC, and GUSD would merge into a single stablecoin, creating a more reliable port.
However, this idea was not approved by investors. Therefore, HUSD began to exist as a stand-alone stablecoin and by withdrawing from Huobi support. Investors, who did not want to be behind a centralized exchange, started to trust after this move.
However, the impact of the events on the UST side was also painful for HUSD. Faced with the meltdown of its millions of dollars of assets and the loss of users, HUSD began to struggle to survive.
Finally, Huobi made the finishing move when it decided to delist HUSD from its exchange. After all these processes, HUSD has ceased to be a stablecoin and is continuing in a depeg manner.
Currently, HUSD is moving towards the $0.142 level. The once sensational stablecoin has seen just $4,000 in volume in the last 24 hours.
Stablecoin Future, Regulations and Controls
Stablecoins falling and failing negatively impact the outlook towards the entire stablecoin industry. Cryptocurrency investors and institutional companies prefer stablecoins with strong collateral and protected assets. In this context, a competition started between USDT, USDC and BUSD.
However, confidence in the crypto industry and stablecoin industry in general has waned. The FTX and Terra crash that took place this year triggered this situation. There was a need for rapid regulation and supervision, which was spoken and expected globally
Especially on the stablecoins side, a global and legally supported regulation is expected to come. This issue is on the agenda of other countries, especially the USA. The collapse of the UST and the depegs of other stablecoins accelerated the legal processes.
The US regulator and the European regulator agree that stablecoins should be on track by 2023. Although this situation does not make people forget the events in the past, it can increase the confidence in the market.
However, investors are expected that these pessimistic clouds over the crypto money market in general will lift and the bear trend will end. The regulation of stablecoins could also be an important factor for the next bull run.
After the regulations and inspections, a new channel will emerge, led by USDT, USDC and BUSD. This channel will ensure the continuity of products that have solid reserves and can be guaranteed. Contrary projects will be banned and eliminated. In addition, the team and assets of the stablecoin project will also be shared transparently with regulators.
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