Another so-called stablecoin took a tumble from its dollar peg this week, fuelling wider concerns about the future of the digital assets.
DEI, used as a collateral mechanism for third-party instruments built on the Fantom decentralised finance protocol Deus Finance, fell to 52 cents – a record low – before recovering on Wednesday to just above 59 cents, according to Coinbase data.
Deus’s market capitalisation also plunged from $100 million to about $52 million.
A stablecoin is a digital currency whose value is pegged to a stable reserve asset such as the greenback or gold. Stablecoins are meant to offer a more reliable investment option, unlike unpegged cryptocurrencies such as bitcoin or ether, which are very volatile.
ALSO SEE: Binance Sees $1.6 Billion Evaporate on TerraUSD-Luna Crash
Terra Collapse Ate 3% of Crypto Cap
Last week the TerraUSD stablecoin collapsed. A computer algorithm that creates and destroys the stablecoin to maintain the peg at equilibrium could not cope with the recent broader market plunge.
“Terra’s demise is one of the largest fiascos in crypto-market history,” Ark Invest analyst Frank Downing wrote in a note. He said Terra’s collapse destroyed roughly 3% of crypto’s total market cap.
The market cap of the crypto market is currently at $1.38 trillion, far from the $3 trillion reached last November.
“This is a horrific destruction of wealth and a lot have been hurt, but … there is still massive potential ahead,” Downing wrote later on Twitter. “Crypto will live on and emerge stronger for it.”
Deus Finance chief executive Lafayette Tabor said the DEI peg would return.
“Our team is working around the clock to restore the DEI peg,” Deus wrote on Twitter on Monday. “Mitigation measures were implemented immediately and solutions are being developed for long-term stability.”
“With [TerraUSD] collapsing, the stablecoin market was shaken,” Tabor added. “We believe a confident peg at $1 and fully collateralised backing is the only answer to resolve short-term peg stability.”
He said the goal is was to return DEI to a 1:1 peg with a basket of assets. “We will achieve this by selling DEUS Treasury bonds in exchange for collateral.”
- George Russell
READ MORE:
Stablecoins Could be Safe Haven in ‘Market Distress’, Say Fed Scholars
Myanmar Shadow Government Backs Use of Stablecoin Tether
Why digital yuan will struggle to displace Tether