USN, a native stablecoin based on Layer one blockchain NEAR, plans to wind down after deeming its setup to be too risky in light of recent issues.
In an announcement on Oct. 24, the NEAR Foundation said it has set aside $40 million for a USN protection program grant which will protect users from a recent issue related to USN. Users will be able to redeem USN for USDT on a 1:1 basis.
NEAR also stated that Decentral Bank had recently contacted the NEAR Foundation to inform them that the USN stablecoin had become uncollateralized. Decentral Bank (DCB) is the DAO that launched and created the NEAR-native USN independently of the NEAR Foundation. According to DCB, USN was initially susceptible to under-collateralization due to its partially algorithmic nature before its June upgrade to v2.
A separate announcement from DCB confirmed that the USN stablecoin would be shutting down due to the “many headwinds” it has faced in the last few months. These headwinds include an increased regulatory focus and changes in market perception from recent events, said DCB.
Although it did not mention the project by name, DCB is likely referring to the market’s now-skeptical outlook on algorithmic stablecoins, given the failure of Terra’s UST.
“As a result of these issues, we have taken the difficult decision to wind down the USN project in a controlled and responsible manner in a way that ensures USN holders are protected,” said DCB in a statement.
The minting of new USN tokens has been permanently stopped and the USN treasury currently holds $38.9 million worth of USDT and 5.7 million NEAR tokens, worth $16.75 million at the time of writing. The NEAR community will reportedly have sole discretion as to how these 5.7 million NEAR tokens are used.
USN holders were asked to redeem their holdings through the USN Protection Program or directly through DCB’s swap tool.
“The DCB team would like to apologize to the entire NEAR community for this regrettable event. The team has worked incredibly hard to self-rectify this issue but were unable to,” said DCB.