Market Analysis Report (25 Oct 2022)

NEAR Protocol’s USN stablecoin is being phased out after it started showing characteristics observed in TerraUSD, the algorithmic stablecoin that collapsed earlier this year. The stablecoin, issued by the DAO Decentral Bank, recently became uncollateralized.

According to a statement issued by the NEAR Foundation, a non-profit supporting the protocol, USN was originally an algorithmic stablecoin, but was upgraded over the summer to be non-algorithmic and fully 1:1 USDT-backed.

Decentral Bank has reportedly contacted the NEAR Foundation to advise it that USN became undercollateralized and “susceptible to undercollateralisation during extreme market conditions.” Given these conditions, the Foundation recommended Decentral Bank wind down the project, which the organization announced it would do, writing:

“USN has faced many headwinds over the last few months with increased regulatory focus, and changes in market perception from recent high-profile incidents. As a result of these issues, we have taken the difficult decision to wind down the USN project in a controlled and responsible manner in a way that ensures USN holders are protected.”

The NEAR Foundation has used $40 million to fund a “USN Protection Programme” to protect investors as the stablecoin shuts down.