A Case Of A StableCoin Depeg

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Algorithimically backed StableCoins have been taking some hits this year, testing their strengths and making them work on their weaknesses, that is for the ones which have been able to bounce back, but for the case of UST, unfortunately there seems to be no hope for its bounce back. The current stablecoin to experience a depeg and had a bounce back is the Acala Dollar (AUSD).

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This just shows how new the StableCoin technology is in the crypto space and how much development is needed in the space. Just as in the case of UST, there was an excess minting of the UST token which made the value depreciate and depeg from the $1 price, happened to the polkadot Collateralized backed StableCoin Acala Dollar (AUSD). This was a case of of an exploit that led to the excess minting of the token.

When there is more supply than demand in an asset, devaluation is the next move. This is because, more people are willing to pay less, about over $1 Billion of the StableCoin was minted by mistake. This made the value of the token to fall down over 90%. That is a huge loss, but if you check at the price currently it has regain its almost pegged price. But how did the token bounce back? Honestly speaking, it was an impressive move to get the wrongly minted token off the chain which cost the chain some loss, but helped regain the price. If this action was not taken, a case of UST was about to repeat itself.

I feel being a Collateralized backed StableCoin instead of an algorithmic StableCoin, it gave it an advantage and an opportunity to be able to sort out its depeg mistake. Mistakes are being made and solutions are being figured out, but currently fiat backed StableCoin seemed to be the safest so far. But you have to be careful because most of them are extremely centralized, they still get depegged sometimes too.

Posted Using LeoFinance Beta



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