Stability is a rare and cherished commodity in the crypto space although market are always bound to fluctuate with price up and down swing traders and investors book profits from market unpredictable moves. Stablecoins with their promise of steadiness, have long been seen as a safe harbor for investors seeking refuge from of market volatility, however with more issuers interest in stablecoin market they have been lots of instability in most stablecoins lately as they always fail to hold their pegs during high market demands, the experience of terra stablecoin UST's market crash still lingers in the minds of most crypto enthusiasts. It was a stark reminder of the pitfalls that can befall even the most well intentioned stablecoin. The crypto space still reeling from the impact of the UST crash.
Most stablecoins are designed to keep investors' funds sheltered from the raging storms of market volatility. They are meant to provide a safer avenue where their value remains relatively constant, assuring investors that their assets are shielded from the rides that other cryptocurrencies often undertake but with an increasing number of stablecoins most investors don't seem to have full trust in stablecoin price stability during market turbulence which have call for stablecoins regulation in most regions.
Unpegged stablecoins have raised concerns for most users, earlier this year U.S. House of Finance, in it move to restore trust in stablecoins, proposed a bill in July calling for the regulation of all stablecoin issuers. The bill suggests that stablecoin issuers should back their tokens solely with fiat cash, providing a solid and stable foundation that can withstand market turbulence although USDC and USDT which dominant trading volume in stablecoin have their stablecoin reserve in fiat currencies backed by U.S dollar this also leaves investors to ask if they should hold their crypto assets in the trust of of centralized issuing companies.
USDR Unpegging
USDR, a rebasing stablecoin issued by the asset tokenization protocol TangibleDAO a polygon based stable used to back real estate objects in the United kingdom loss it peg to the USD currency, the issuer claimed that the stablecoin had a reserve backed by tokenized real estate, but it assurance backing was put to the test as the stablecoin fails to hold it peg it had been trading at $0.996 but quickly lost its peg plummeting to $0.50 which represents a staggering 50% loss of its value in short moments. Such an occurrence is unusual for stablecoins assets, with 45 million USDR in circulation the company boasts of it reserves of over 49 million collateral which will be used to balance the system although from report source Decrypt showed there have not been tangible reasons why USDR loss it peg in just 3 hours.
Why most stablecoin unpeg
A primary reasons why most stablecoins loss their pegs are because of instability of the assets backing them. The value of stablecoins is typically pegged to assets like fiat currencies, which are supposed to act as collateral to maintain the coin's stability when there are high demand or supply the value of these assets can waver, and if they decline significantly it can lead to the unpegging of the stablecoin another factor that can upset the delicate balance of stablecoins are the failure to match the requirements for redemptio like in the case of Terra Luna and UST, the sudden and excessive demand for redemptions created a strain that the system couldn't sustain, leading to it peg breaking.