Near Foundation launches a $40M fund to cushion USN stablecoin investors

After the USN stablecoin was undercollateralized, the Near Foundation proposed winding down the in-house stablecoin to ensure that the situation that happened with Terra Luna and TerraUSD did not happen.

Near launches a $40M fund to cushion USN investors

On October 24, Near Foundation announced it was setting up a $40 million fund that would cushion USN investors. The fund will allow these investors to redeem their USN tokens on a 1:1 basis with USDT.

The fund was launched after Decentral Bank, which is behind the USN stablecoin, raised concerns about the depegging of the stablecoin because of a failure of the algorithm. The USN Protection program will cater to the collateral gap of $40 million.

In a statement, Near Foundation said it was “recommending that DCB wind down USN in an orderly manner. To assist with this process, the NEAR Foundation has provided a $40M USD grant to a subsidiary of Aurora Labs – one of the NEAR ecosystem’s most prominent contributors – to set up the USN Protection Programme.”

The $40M grant was availed to users allowing them to exchange their depegged stablecoins for USDT. However, users can only start redeeming their tokens after DCB starts winding down the stablecoin.

DCB has said that USN was no longer an algorithmic stablecoin, adding that the original algorithmic version known as USN (v1) was upgraded to v2. This makes the stablecoin vulnerable to under-collateralization in case of extreme market conditions.

The Foundation has not provided the criteria that will be used to pick out the USN investors that will benefit from this program. However, Near said the program would remain active until October 24, 2022.

Near has also unveiled plans to launch a funding drive that will prevent collateralization issues to protect investors from the collapse of stablecoins.

Concerns surrounding stablecoins

The acting chairman of the US Federal Deposit Insurance Corporation (FDIC), Martin Gruenberg, has recently discussed the use cases for stablecoins. Gruenberg addressed how the FDIC could approach stablecoin regulations and the approach used by banks planning to offer crypto services.

Gruenberg has also addressed the changing use cases and the business models used by crypto assets. According to the FDIC, it was collecting crucial information to support comprehending and gaining supervisory feedback on cryptocurrency assets.

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