Huobi’s HUSD De-Pegged From The U.S. Dollar, Is A New TerraUSD Scenario Incoming?

As the crypto market is recovering from the wound that TerraUSD (UST)’s collapse made, a new episode of stablecoin de-pegging is here – this time the victim is HUSD, the stablecoin project of Huobi Global.

The stablecoin, issued by Stable Universal and backed by Huobi Global, began its plunge in the early hours of August 18, reaching a low of $0.9 per token before bouncing back up to around $0.97. However, as the market pressure grew and took the stablecoin by a storm. In turn, the HUSD stablecoin lost ground and sunk to a low of $0.878, as of press time.

The reason for the de-pegging

It turns out that the de-pegging from the U.S. dollar is the imbalance in the Curve 3pool (3Crv) — the largest liquidity pool on the decentralized exchange Curve. In order for a token swap pool to do its job, the two currencies in it have to be in a 50:50 proportion. However, the currency reserve breakdown for the pool is now at a ratio of 92% HUSD to 7.35% 3Crv, which makes it almost impossible for the pool to conduct token swaps due to not enough liquidity in one of the tokens.

3Crv, on the other hand, is a stablecoin pool that contains deposits of the three largest stablecoins to date - USDT, USDC, and DAI.

Huobi’s answer

Meanwhile, as the storm intensifies, the Huobi-backed Stable Universal stated numerous times that HUSD was fully backed by cash reserves. Huobi’s role in the stablecoin project started in June 2021, when Huobi announced that the Huobi Trust is now the sole custodian of the stablecoin, which was previously backed by Paxos.

“We are aware of the current liquidity issues associated with the HUSD stablecoin, which is issued by Stable Universal Limited and built on the Ethereum network,” Huobi representatives shared on Twitter, adding that the company has always prioritized the safety of our customer's assets, and will work together with HUSD's issuer to find a solution and restore its stability as soon as possible.

Is Huobi taking the same route as Terra?

Such a rapid de-pegging is an almost uncontrollable event, as token holders seek to exit their positions or sell their tokens in order to mitigate the losses if the stablecoin hits rock bottom. However, despite the relatively small size of the stablecoin, its effects can translate to the broader crypto sector and experts are not excluding yet another crypto slump due to market pressure.

Interestingly, Huobi has reportedly exited its stake at Stable Universal, according to chat communications in Telegram. However, several Twitter users pointed out that despite knowing about the liquidity issues of HUSD, the exchange made a promotional high-yield campaign with 10% APY for a 14-day stake in their "PrimeEarn High-Yield Tuesday" deposit event.

Crypto markets retreat

Whether or not HUSD is affecting crypto markets is rather early to tell. However, the overall sentiment in the market is bearish, with most of the coins and tokens losing anywhere between 2 and 20 percent. Bitcoin, for example, fell below the $24,000 mark, with the drop starting early on August 18. Bitcoin’s price behavior translated to other projects, as Ethereum is in a recovery mode from the latest crypto plunge.

Overall, the crypto market is expanding, with a total crypto market capitalization of little over $1,12 trillion.