Why has the USDR Stablecoin collapsed by 50%?

The crypto sector is once again shaken by the fall of a stablecoin! The real estate-backed USDR abruptly lost parity with the dollar, highlighting the risks inherent in alternative stablecoin mechanisms. Let’s take a closer look at this collapse and its implications for the cryptocurrency and DeFi sectors.

Unexpected collapse of the USDR

Stablecoins derive their essence from the promise of stability, anchored by their backing by traditional assets such as fiat currencies. Familiar names such as Tether’s USDT and USDC from Circle are well established in the ecosystem. However, with the rise of decentralized finance, we are seeing the emergence of stablecoins linked to increasingly diversified assets.

USDR is distinguished by its reliance on two main asset classes: real estate and liquid assets, solidly backed by substantial DAI reserves. This new USD-indexed token has been designed as an innovative alternative to conventional stablecoins, merging liquid and illiquid assets to forge a hybrid financial instrument in an increasingly competitive crypto world. As a result, its total capitalization of $45 million, 34 million comes from real estate assets and the remaining $11 million is in DAI. This configuration reveals an ambition to combine both stability and profitability.

However, the very design of the USDR may have contributed to its decline. By moving away from the relative stability of fiat currencies, it has instilled latent volatility, amplified by the combination of real estate and cryptocurrencies as reserves.

TangibleDAO attempts to bring hope to stablecoin holders

This combination, although initially promising, revealed its weaknesses on October 11. USDR plunges to $0.53, a far cry from its $1 peg to the dollar. This significant gap was mainly attributed to liquidity issues after a massive sale of DAI, generating panic among holders.

Via TwitterTangibleDAO the project behind the stablecoin, has tried to calm things down stressing that the fall was linked to liquidity problems and not to a depreciation of USDR assets.

They reaffirmed their commitment to finding solutions, insisting that the assets backing the USDR “are still there” and will be used to facilitate redemptions.

This is a liquidity problem. The real estate and digital assets backing the USDR still exist and will be used to support redemptions.

USDR team statement

Despite assurances from TangibleDAO, skepticism has taken root in the crypto community. The breakdown of USDR’s collateral (14.74% in TNGBL tokens and 85.26% in real estate and an insurance fund) did not appease the market.

The USDR stall is reminiscent of the Terra Luna UST disaster in May 2022. This raises a central question for DeFi and stablecoins. How can innovation, profitability and stability be merged? TangibleDAO’s gamble has proved a risky one, and restoring trust looks set to be a bumpy ride.