This stablecoin project was shut down after suffering $40 million collateral gap

After the $41 billion implosion of Terra’s algorithmic stablecoin UST and sister token LUNC (previously LUNA), the crypto industry is wary of collapses. Decentral Bank, the DAO behind USN stablecoin, announced that it is unwinding the project due to a $40 million collateral gap. 

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USN stablecoin on the Near protocol blockchain is winding shop

The Near Foundation, a community-driven non-profit foundation maintains the NEAR protocol. It was set up by the decentralized autonomous organization (DAO) Decentral Bank who recently announced that the USN stablecoin project will be unwinded due to the $40 million collateral gap. 

For a stablecoin project, collateral is key. Crypto-backed stablecoins use cryptocurrencies as collateral. Users typically deposit and lock other cryptocurrencies to create stablecoins and they are generally over-collateralized to account for volatility. The stablecoin DAI is pegged to the US Dollar and one DAI is the equivalent of one USD. 

Similarly, collateral was key to the USN stablecoin project. However the stablecoin suffered a collateral gap of $40 million resulting in its unwinding. The Near-native stablecoin was created and launched by Decentral Bank (DCB) and the organization supporting the Near blockchain announced that a $40 million fund was set aside to fund a “USN Protection Programme.”  DCB has 5.7 million NEAR worth $16.7 million. DCB recently issued a statement saying that it will donate its NEAR tokens to the community. 

Since discovering the $40m collateral gap Decentral has permanently halted the minting of new USN  but existing holders can redeem their tokens for USDT through the USN Protection Programme. The USN Protection Programme is backed by a grant from the Near Foundation. The foundation issued a statement, 

This collateral gap of $40m USD is fully covered by the USN Protection Programme. The NEAR Foundation is recommending that DCB wind down USN in an orderly manner.

USN holders who have completed their Know-Your-Customer (KYC) and Anti-Money Laundering checks have access to the redemption program that is live for 12 months. Holders have an option to redeem their USN stablecoin using the decentralized applications Decentral Bank or Aurora Labs over the next year.