Learn Concept: Liquidity Crisis in Stablecoin Market

By: Isha Das

The decentralized finance space has recently experienced a stark example of a liquidity crisis with the real-estate-backed stablecoin, USDR. USDR is issued by a decentralized finance project called Tangible protocol which tokens real estate and other physical assets. The stablecoin was designed to maintain a steady value of $1 in the market like other stablecoins but an unexpected rush of redemptions caused it to fall sharply to $0.53.

Many stablecoin holders tried to redeem their USDR when encountering doubts about the project thus demanding liquid assets like DAI from its treasury. As mass redemptions took place, it led to lack of DAI for further redemptions causing panic selling among holders that finally caused the stablecoin to depeg from its intended $1 value. Despite this, the developers of USDR are focused on finding a solution and are using their real estate holdings and digital assets to support further redemptions.

Stablecoins are usually designed to maintain a steady value of $1 in the market. However, they can often lose their peg in high pressure market scenarios like mass redemptions. This episode reinforces how important it is for projects to manage their treasuries and liquidity to avoid such situations where panic selling can depeg a cryptocurrency from its intended value causing damages to holders.