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Thursday, December 7, 2023

Trader swaps 131K stablecoins for $0 during USDR depeg

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During the crisis on Oct. 11 involving real-estate-backed U.S. dollar stablecoin Real USD (USDR), a trader appears to have swapped 131,350 USDR for 0 USD Coin (USDC), resulting in a complete loss on investment.

According to the Oct. 12 report by blockchain analytics firm Lookonchain, the swap occurred on the BNB Chain through the decentralized exchange (DEX) OpenOcean, at a time when USDR depegged from par value by nearly 50% due to a liquidity crunch. A maximal extractable value (MEV) bot subsequently picked up the discrepancy, netting a total of $107,002 in profits through an arbitrage trade.

During periods of poor liquidity, slippage on DEXs can reach as high as 100%. In September 2022, Cointelegraph reported that a trader attempted to sell $1.8 million in Compound USD (cUSDC) through Uniswap v2 and only received $500 worth of assets in return. In this instance, another MEV performed an arbitrage trade before its over $1 million in profits were hacked just hours later.

On Oct. 11, USDR depegged after users requested over 10 million stablecoins in redemptions. Despite being 100% backed, less than 15% of its then $45 million in assets were backed by liquid TNGBL tokens, with the remaining backed by illiquid tokenized real-estate assets.

As explained by analyst Tom Wan, the tokenized assets were minted on the ERC-721 standard, which could not be fractionalized to create liquidity for investor redemptions. In addition, the underlying homes could not be immediately sold to meet investors’ withdrawal requests. Altogether, the Real USD treasury could not meet the redemptions, leading to a collapse in investors’ confidence.

Why USDR depegged despite being fully backed: Using Illiquid asset backing liquid Asset
– USDR is 100% backed. 50% of them come from stablecoins and the remaining comes from Real-Estate
– When there is a bank-run (Huge Redemption of USDR), the Stablecoin liquidity in the… https://t.co/xOrsa5gpKU pic.twitter.com/OYhQ0twUUd

— Tom Wan (@tomwanhh) October 12, 2023

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