TrueUSD (TUSD) Faces Turbulence as Value Falls Below $1
Trust?
TrueUSD (TUSD), a stablecoin that typically maintains a $1 peg, has encountered a notable decline in value, sparking concerns about its stability. CoinGecko data reveals that TUSD experienced a dip to approximately $0.97 overnight, currently hovering at $0.98 as of the latest update.
https://www.coingecko.com/en/coins/true-usd
The instability in TUSD’s price became apparent on January 15, when traders executed a substantial sell-off, converting over $300 million worth of TUSD to USDT on the Binance platform. Despite some subsequent buying activity, Binance trading data indicates that TUSD witnessed net outflows totaling $279 million over the past five days.
We express concerns about TUSD’s ability to maintain confidence and stability among users in the aftermath of a significant sell-off on Binance. This massive sell-off, undermines users’ confidence in the assurance that TUSD can be redeemed for $1 at any given time.
The reasons behind the substantial sell-off of TUSD remain unclear, with speculation linking it to the recent $100 million exploit on Poloniex, an exchange associated with Justin Sun.
We highlight the importance of monitoring the stablecoin’s market cap in relation to liquidity, whether on-chain through decentralized exchanges or off-chain via centralized exchanges or banks. Stablecoins are either backed by liquid cash equivalents or overcollateralized by highly liquid tokens, like ETH.
That failure to monitor the balance between market cap and liquidity can lead to issues, citing examples such as the collapse of Terra and Signature Bank’s liquidity problems impacting the market capital of USDC.
We don’t know how TrueUSD was structured, but clearly off-chain liquidity reliance caused a breakdown in people’s trust of the token. In the long term, if sufficient backing is there somewhere, it will repeg at a lower market cap.
If the depegging resulted from external forces or not, it poses a significant challenge that TUSD has failed in terms of stability. The situation underscores the importance of closely monitoring stablecoin structures and their backing to ensure sustained user confidence and market stability.
Keep an eye.