Near Foundation to wind down USN stablecoin

The Near Foundation, an organization behind the NEAR blockchain, urged the winding down of the USN stablecoin and announced a $40 million fund for a “USN Protection Programme.” The foundation is setting aside the funds, which it says is equal to the amount of a “collateral gap” associated with the undercollateralization of the USN project.

USN, a Near-native stablecoin, was created and launched by Decentral Bank (DCB) in April. According to a statement on Oct. 24, USN is an independently operated community-run project that had no direct financial assistance from the Near Foundation.

The statement said DCB recently contacted the Near Foundation to advise it that USN had become undercollateralized, a condition that is “inherent” with algorithmic stablecoins, especially in “extreme market conditions.” DCB further confirmed, according to the foundation, that there was also double-minting of USN, which contributed to the undercollateralization.

“The Near Foundation is recommending that USN should wind down. The Foundation encourages DCB to do this at the earliest opportunity in a responsible and professional manner that protects all of its users,” the foundation wrote.

According to the statement, the Near Foundation has decided to set aside $40 million, available via a grant for the creation of the “USN Protection Programme,” to protect users and to facilitate the winding down of USN by DCB.

“With the USN Protection Programme, Near Foundation understands that USN is now overcollateralized, as there is also approximately 5.7 million NEAR tokens in the DCB treasury, which the foundation expects DCB to donate to the Near community,” the statement said.

Near Foundation CEO Marieke Flament told CoinDesk that her organization has been focusing on being transparent and communicating with the community about what has happened.

“We are in a regulatory landscape where the crypto space has a bad reputation and so does anything stablecoin-related,” Flament said. “It’s about working through this and putting our values of transparency and making sure users are protected.”

In her words, Flament is confident that as the ecosystem grows and matures, and with recent new hires, this type of intervention should not be required in the future. “As an ecosystem, we can learn from this and prevent it in the future,” she concluded.

Details on the DCB website indicate that USN is a “semi-algorithmic” stablecoin that is backed by both NEAR and USDT but ensures that there will be no over-collateralization on the part of the user. USN maintains its peg to the US dollar “through on-chain arbitrage and a self-balancing Reserve Fund,” the website says.