This article is more than six months old

USDR stablecoin backed by real estate collapses amid run on reserves

USDR stablecoin backed by real estate collapses amid run on reserves
The USDR stablecoin was backed by real estate in the UK, as well as other cryptocurrencies. Credit: Karen Mclaughlin/Shutterstock
  • USDR lost its peg to the US dollar Wednesday, falling to $0.50.
  • The token has a novel combination of collateral assets that include UK real estate and other stablecoins.
  • Experts say its collapse was predictable, however. “It’s unforgivable,” one said.

USDR, a stablecoin backed by UK real estate and other crypto, lost its peg to the US dollar in dramatic fashion Wednesday, falling to $0.50 in a span of about four hours as users tried to redeem it for DAI, one of the assets backing it.

Tangible, the company behind USDR, which is also known as Real USD, admitted late Wednesday that its stablecoin was a failed experiment and that it would attempt to make users whole over the next several weeks.

“Tangible’s future will not include Real USD,” the company said on X, formerly known as Twitter.

“We tried something novel with Real USD, but there were too many attack vectors in the design. Elements put in place to protect the customer were too easily manipulated to attack the protocol. We can protect our users at the current size, but as we continued scaling it may have become impossible.”

But experts who took a look at UDSR said its collapse was no surprise.

“The stablecoin design, which is partially algorithmic and partially backed by illiquid collateral, does leave the possibility for a bank run with disastrous consequences,” WormholeORacle, a pseudonymous researcher at crypto due diligence firm LlamaRisk, told DL News.

“If they are indeed properly collateralized and responsibly liquidate, the depeg should recover,” they added, “although personally I find the design too unstable to reliably keep a peg.”

Tangible did not return a request for comment for this story.

Join the community to get our latest stories and updates

‘A better money’

Like all stablecoin issuers, Tangible marketed USDR as a particularly safe way to hold crypto.

“Choose a better money,” its website reads. “Earn yield with the first money backed by real estate.”

The website also touted USDR’s 16% annual percentage yield, which, it says, comes from rental income generated by Tangible’s real estate investments, an automatic “re-collateralizing” mechanism meant to ensure it is always fully backed, and its reserves.

The stablecoin had a market capitalization of almost $70 million on Tuesday.

“One quick look at USDR reserves is all it takes to know that USDR would have received an ‘F’ from us,” Vaidya Pallasena, ratings director at stablecoin analysis rating Bluechip, told DL News.

That is, in part, because the stablecoin is partially backed by other tokens issued by Tangible, most prominently TNGBL.

Stablecoins that are partially backed by affiliated tokens took a massive hit to their reputation after the multibillion-dollar collapse of Terra USD last year. Such stablecoins are vulnerable to “death spirals,” in which a selloff in the stablecoin or its affiliated token spooks investors, who then dump one or the other, creating a negative feedback loop. TNGBL is down more than 50% over the past week.

Almost 5% of USDR’s backing came from TNGBL as of Tuesday. Another 9% came from an “insurance fund” which itself was comprised of TNGBL and a mix of other crypto tokens, most of which are locked for the next two years.

But it was USDR’s partial backing by DAI, another dollar-pegged stablecoin, that ultimately caused its downfall.

DAI was the only liquid, stable asset backing USDR, and it made up about 17% of its reserves on Tuesday. Users redeeming USDR for DAI this week eventually drained the stablecoin’s DAI backing, leaving nothing but TNGBL, the insurance fund, “protocol liquidity,” and illiquid real estate investments.

Tangible acknowledged the potential for this to happen in the documentation on its website.

“While Real USD is designed to guarantee redemptions for DAI at any time, it’s not inconceivable that heightened demand for USDR redemptions might deplete existing DAI reserves, outpacing our ability to responsibly downsize the treasury,” it wrote.

Bluechip’s Pallasena said that “this is a clear example of the team completely disregarding the basics of Asset-Liability Management. Here you have known liabilities in the form of stablecoins that can be redeemed on-demand, paired with illiquid assets.”

When stablecoins aren’t backed by US dollars, as USDR isn’t, they’re typically over-collateralized in order to protect against a sharp drop in the value of the assets backing them.

“Even assuming reserves did not hold any TNGBL, the stated collateralization ratio [of USDR] is ~110%,” Pallasena said. “With real-estate forming the largest chunk of reserves, it’s unforgivable to assume you can operate at ~100% collateralization with assets being so illiquid.”

Next steps

On Wednesday night, Tangible said it would attempt to make USDR investors whole.

It will be an uphill climb: assuming the value of Tangible-issued tokens that back USDR fell to zero, there would be only $0.84 in collateral for every dollar of the stablecoin.

The company said it would attempt to sell the assets in its insurance fund, and let some users swap their USDR for the $2 million in other stablecoins Tangible still holds.

Tangible will also distribute new yield-generating tokens backed by real estate.

“There’s no peg, asset value is transparent,” Tangible said of the new, real estate-backed tokens.

In the event nobody wants those tokens, however, the company has started to try and sell off some of its real estate, something it called a “slower path to liquidity for users.”

Once the company sunsets USDR, it will continue its other business: selling NFTs that holders can redeem for real-world items, such as gold bars, watches from brands such as Cartier and Hublot, $10,000 bottles of wine, and, of course, real estate.

“Tangible isn’t going anywhere, we have a flywheel that works and plan to continue building within that,” the company said.

Aleks Gilbert is DL News’ New York-based DeFi Correspondent. Reach out to him with tips at aleks@dlnews.com.

Related Topics