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31st December 2022 > > USDV.


An all-too predictable demise of another algorithmic stablecoin USDV.

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All quiet with trading desks manned to the minimum.

Curious Cryptos’ Commentary — Another algorithmic stablecoin dies a slow death

DeFi (decentralised finance) protocol Vader had both a native token VADER and an associated algorithmic stablecoin USDV pegged to USD.

All the way back in May the Terra fiasco arose because its own algorithmic stablecoin UST (Terra USD) lost its peg leading to hyperinflationary printing of LUNA (now LUNC) breaking investors’ faith in the peg.

This turn of events is not dissimilar to the cycle that leads to hyperinflation as seen in the Weimar Republic, Venezuela, and Zimbabwe, amongst others. Since the fall of the gold standard fiat currencies only have value because people believe they have value. Money printing (quantitative easing) in closed economies (lockdown measures) can only ever result in high inflation, though apparently no central banker in the world saw that one coming.

Once UST started to de-peg, the mint function to maintain the USDV peg was halted to try to prevent a repeat at Vader.

Since that time the team behind Vader have been exploring ways of maintaining the Vader ecosystem to no effect:

“… upon rigorous research and discussions, the team found no notable breakthrough in the algorithmic stablecoin design that is capital efficient.” (*)

I could have told them that a long time ago.

Algorithmic stablecoins are destined to fail at some point. The USD has the might of the world’s largest economy, the world’s most effective democracy (tin hat time), the world’s largest army, and the two largest air forces (the second one being the one owned by the US navy), in support of the interests and values of all Western liberal democracies (double thickness tin hat time). USDV had a few very smart cookies lounging around on bean bags as its strike force.

Owners of $VADER and $USDV are invited to redeem their holdings for any remaining collateral removed from Uniswap and Curve liquidity pools accessed here:

Remarkably VADER is still trading at and is up 25% in the last day, though volumes are minimal, and depth is close to non-existent causing slippage pain for trades of size.

There are three clear takeaways from this story.

Firstly, and we know this already, algorithmic stablecoins are an inherently bad idea.

Secondly, the pausing of the protocol, and the replacement of the burn function with a redeem function, shows that even in the decentralised world, there is still an element of centralisation. Crypto maximalists must get used to that idea.

Finally, the team at Vader averted a catastrophe like the Terra fiasco as they avoided the hubris of people like Do Kwon and Sam Bankman-Fried, hubris that means both those individuals will spend the rest of their lives in jail.

(*) The term “capital efficient” refers to the lack of hard assets acting as collateral to the stablecoin.

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