What Happened

Anchored (USN/NEAR)

$40M|Depeg / Death Spiral|October 24, 2022

Algorithmic stablecoin unwinding — USN was a NEAR-native algorithmic stablecoin that lost its peg and had to be wound down by the NEAR Foundation after the mechanism could not sustain the peg, similar to Terra/UST but on a smaller scale. A $40M collateral gap from double-minting was discovered, requiring a NEAR Foundation bailout.

What Hindenrank Would Have Said

As of September 1, 2022

D+
Risk Score
65/100

“Very high risk — USN is a hastily redesigned algorithmic stablecoin with opaque reserves, untested v2 architecture, and legacy exposure to the same death spiral mechanism that destroyed Terra/UST. The rapid pivot from algorithmic to USDT-backed reveals fundamental design fragility. Avoid or minimize exposure.”

Mechanism Novelty12/15
Interaction Severity16/20
Oracle Surface7/10
Documentation Quality7/10
Track Record6/15
Scale Exposure3/10
Regulatory Risk8/10
Protocol Vitality6/10

Grade Predicted This Failure

Flagged by dimensions: Mechanism Novelty, Interaction Severity, Oracle Surface, Documentation Quality, Regulatory Risk, Protocol Vitality

One or more collapse scenarios directly matched the actual failure mode.

Top Risks Identified

  1. 1.Algorithmic stablecoin with reflexive death spiral risk — USN v1 relied on NEAR mint/burn arbitrage identical to Terra/UST's failed mechanism
  2. 2.Legacy NEAR collateral from v1 era remains in reserve fund, creating undercollateralization exposure if NEAR price drops further
  3. 3.Rapid mid-flight redesign from algorithmic (v1) to USDT-backed (v2) signals mechanism fragility and untested new architecture
  4. 4.Decentral Bank DAO governance is opaque with unclear reserve fund transparency and no publicly available audit reports
  5. 5.Regulatory crackdown on algorithmic stablecoins post-Terra makes USN a target for enforcement action

Collapse Scenarios

Algorithmic death spiral from legacy NEAR collateral

Elevated
Trigger

NEAR price drops below $2, causing reserve fund value to fall below 100% of USN supply

Cascade
1.
NEAR price decline erodes reserve fund value below USN supply→Reserve fund becomes undercollateralized
2.
Sophisticated holders detect undercollateralization and begin redeeming USN→Redemption pressure forces NEAR sales from reserve
3.
NEAR sales from reserve further depress NEAR price→Reflexive spiral: lower NEAR price -> more undercollateralization -> more redemptions
4.
USN/USDT stableswap pools become heavily imbalanced→USN depegs as USDT liquidity drains from pools
5.
Bank run on remaining reserves→USN peg collapses, holders suffer significant losses
Historical Precedent

Terra/UST collapse May 2022 — nearly identical mechanism destroyed $40B+ in value. Iron Finance TITAN June 2021.

Double-minting collateral gap from v1/v2 transition

Moderate
Trigger

Discovery that USN supply exceeds actual reserve backing due to accounting errors during v1-to-v2 migration

Cascade
1.
Audit or community investigation reveals USN minted under v1 was not properly accounted for in v2 reserves→Phantom USN supply discovered — more USN in circulation than reserves can back
2.
News of collateral gap spreads through crypto media→Confidence collapse triggers mass redemption attempts
3.
Reserve fund insufficient to honor all redemptions→USN depegs as market prices in the shortfall
4.
Decentral Bank DAO attempts emergency measures→Governance response too slow to prevent cascading losses
Historical Precedent

Various DeFi protocols have suffered from accounting mismatches during mechanism transitions. Tether transparency concerns are a persistent market issue.

Regulatory enforcement against algorithmic stablecoins

Moderate
Trigger

Major jurisdiction (US SEC, EU) takes enforcement action against algorithmic stablecoins post-Terra

Cascade
1.
Regulatory body announces enforcement action or ban on algorithmic stablecoins→Exchanges preemptively delist USN to avoid regulatory exposure
2.
USN liquidity dries up across exchanges→Redemption becomes the only exit, overwhelming reserve fund
3.
NEAR Foundation distances itself from USN→Loss of ecosystem support eliminates last backstop
Historical Precedent

Post-Terra regulatory scrutiny of algorithmic stablecoins. SEC Chair Gensler's remarks comparing algorithmic stablecoins to poker chips.

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