Real Estate-Backed Stablecoin USDR Depegs Due To Liquidity Issues,

Polygon-based stablecoin Real USD (USDR) has faced a significant depegging crisis, losing almost 50% of its value in a short span of time.

The stablecoin, issued by Tangible protocol, is unique in its backing, which combines cryptocurrencies and real estate assets. The recent turmoil unfolded after a surge in redemption requests led to a rapid depletion of liquid assets, particularly DAI, from the USDR treasury.

The aftermath saw USDR trading at approximately $0.51, down from its $1 peg, prompting panic selling. The Tangible team, acknowledging the liquidity issue, reassured users that the real estate and digital assets supporting USDR still exist and will be utilized for redemptions. However, the exact value that the redemption process will bring for investors remains uncertain and could take months to unfold.

USDR's collateralization, which was initially over 100%, dropped to 84% after removing the ecosystem token TNGBL and the insurance fund from consideration. The Tangible team, committed to addressing the situation, withdrew protocol-owned liquidity (POL) from the Pearl decentralized exchange on the Polygon network. Unable to redeem USDR directly, the team burned the tokens held by the protocol. The remaining stablecoins from POL and Insurance Fund sales will be part of the redemption process.

In an attempt to restore faith in the stablecoin, Tangible outlined additional measures. They highlighted the launch of Baskets, pools of tokenized real estate, as a crucial element in the redemption process. Users will have the option to hold real estate-backed tokens, earn yield through rebasing, farm Basket tokens on Pearl, or sell them into established Pearl liquidity.

The depegging incident raises concerns about the broader concept of real-world asset (RWA) tokenization, where traditional investments like real estate are converted into digital tokens. While proponents argue for increased flexibility and new investment opportunities, the USDR case underscores the potential risks associated with illiquid assets in times of stress. The inability to quickly sell real estate holdings to meet redemption demands contrasts with more traditional stablecoins, like Circle's USDC, which often holds highly liquid and secure assets.

The USDR depegging also led to discussions about the stability of its design, with DeFi analyst Valentin Mihov expressing scepticism about the project's backing and liquidity. The incident serves as a reminder that even novel financial instruments must address potential weaknesses in their design to prevent systemic issues.

TangibleDAO, the entity behind USDR, emphasised its commitment to learning from the experience, discontinuing USDR, and continuing to innovate in the real-world asset tokenization space. The fallout from the USDR crisis highlights the delicate balance needed when exploring new financial models in the ever-evolving world of decentralised finance (DeFi).