Is Tangible's USDR the Next Big Crypto Scandal? Inside the 50% Collapse
The Freefall of USDR
At the crack of dawn in the world of decentralized finance, an unexpected event unfolded. Starting at $0.996 at 7:53 am ET, USDR, the “rebasing” stablecoin sired by Tangible, witnessed its valuation plunge to $0.50 by noon - a ruthless degradation of 50% in a matter of hours.
This sudden fallout of the coin left stakeholders in a state of shock and turmoil. Jay Singh, the insightful co-founder and CEO of Tangible, addressed this as an "evolving situation". His assurances about future announcements related to an autopsy of the incident and real estate liquidations gave some hope to the market participants.
Peculiar Reserve Assembly and Return Estimates
Notably, USDR was renowned for its exclusive reserve assembly, which prominently consisted of tokenized real estate. This unique profile had aroused a fair share of anticipation among audiences, with hopes high for substantial rental income generation.
Through the official online portal of Tangible, it was projected that USDR's yield would hit the 6.38% mark. In contrast, its intrinsic token, TNGBL, promised a higher return, flaunting an Annualised Percentage Yield (APY) of 10.00%.
As per the information divulged by Chainlink’s Proof of Reserve scheme, Tangible’s reserves had downsized dramatically to $49,590,552, a distressing fall from its zenith of over $80 million. Strikingly, DAI, the decentralized stablecoin, formed up to 50% of Tangible's cache.
DAI's Part to Play and Implications on Regulations
With the avalanche of redemptions, the treasury of USDR was bereft of all liquid DAI. This unforeseen depletion led to a frenzy of selling and depegging, pushing the market into a state of chaos.
Contributing to this disorder, the U.S. House Financial Services Committee in July enforced a regulation demanding that stablecoin patrons must back tokens exclusively via cash, cash equivalents or Treasury bills. This sudden regulatory interference spiced up the ongoing tumult.
Ripples in the Market and User Tendencies
In the wake of the liquidity deficit in Tangible's fund, one worried investor traded $130,000 of USDR for USDC at a minuscule exchange rate of $0.0001 on BNB Smart Chain. This precipitous act wound up an MEV bot with a jaw-dropping profit of $107,000.
The market cap of USDR saw an accelerated depletion, as the absence of DAI for redemptions exacerbated the liquidity crisis. Plans were soon underway in Tangible to revamp this desolation by liquidating their insurance fund and pumping in $2.4 million from its DAI, USDC, and USDT holdings.
Parallels Drawn, Speculations and Predictions
Renowned crypto research specialist Emperor Osmo recommended USDR holders to weigh the option of withdrawing from their positions. With DAI's backing in the oceans and illiquidity at an all-time high, it appeared as the most sensible action.
Interestingly, the Tangible treasury reported zero DAI holdings. The only liquid asset remaining in circulation was a $6.2 million insurance fund. This triggered rumors of a likely preplanned rugpull among the crypto community.
Future Plans and Dynamics of Tokens
Moving past the crisis, Tangible plans to mint actual tokenized assets into a profit-yielding Basket token. The team is prepared to liquidate real-world property should the demand for Basket tokens not suffice.
Meanwhile, RealUSD committed an APY ranging between 5% -10% to USDR holders, based on a value accrual mechanism. Tangible's wallet currently bears approximately 32.85% of USDR’s total supply, valued at a robust $8.16 million.
Legal Pitfalls and Regulatory Glitches
The path to steady stablecoins backed by real-world assets is fraught with challenges. From the legal transfer of ownership to protecting the asset from loss and theft, it's a risky affair.
Tom Wan, a research analyst at 21co, lambasted Tangible for the decision of using illiquid assets such as real estate to prop up a liquid one. He deemed this a calamitous move that led directly to the DAI liquidity crisis.
Crucial Lessons Learned
The unraveling of USDR offers arduous lessons on reserve mismanagement, regulatory gaps and the importance of investor sentiment. It spotlights the hidden risks in asset-backed stablecoins, especially those that ground their worth in unconventional reserve elements, such as real estate.
This crisis underscores the urgency of transparency, robust reserves and stringent regulatory protocols to ensure that market sanctity and investor interests are safeguarded.
All eyes will be trained on how Tangible, and indeed the wider industry, respond to and recover from this jarring jolt. We will watch as they walk this tightrope, endeavoring to strike a balance between innovation and risk mitigation.
1. What led to the sudden 50% drop in the value of USDR?
The drop was primarily caused by panic selling, sparked by fears over Tangible's rumored inability to liquidate its real estate holdings. A significant withdrawal by one investor worsened the situation.
2. Why did DAI reserves play a crucial role in this event?
DAI, making up to 50% of Tangible's reserves, was the main liquid asset supporting USDR’s value. As redemptions drained these reserves, it triggered a liquidity crisis which further deepened the collapse.
3. How does the fall of USDR compare to previous crypto market crashes?
The USDR crash mirrored the Terra USD [USTC] and Terra Luna [LUNA] collapse of 2022. Both incidents involved fears about illiquid reserves, leading to panic selling.
4. What are Tangible's recovery plans following this event?
To recover from the liquidity crisis, Tangible plans to liquidate its insurance fund and contribute $2.4 million from its DAI, USDC, and USDT reserves. Additionally, it plans to mint real-world assets into a yield-boosting Basket token.
This article has been refined and enhanced by ChatGPT.