USDN drops again to 91 cents on the dollar amid speculation
Coindesk • November 08, 2022
The USDN, an algorithmic stablecoin that is designed to follow the dollar in a 1:1 peg dropped to 91 cents on the dollar, substantially deviating from the peg it's supposed to hold by 9%.
We've seen similar drops happen before in the beginning of April when it went down to 78 cents on the dollar and May when it dropped to 82 cents. Each time a temporary loss of confidence caused a sharp decrease in price before recovering back to the 97-99 cents range.
This latest drop is another reminder that the name algorithmic 'stablecoin' can be misleading as these type of financial innovations are not guaranteed to be stable. They are backed not by the USD but by another crypto token. USDN is backed by the WAVE token. Through an algorithm that automatically mints or burns the underlying token, the value of the 'stablecoin' is attempted to be controlled.
USDN's algorithm has in fact an operating principle indentical to the large stablecoin Terra that completely wiped out to less than 1 cent on the dollar last May and hasn't recovered ever since. This means USDN is also suspectible to such a so-called 'death spiral' and caution is advised.