USDR liquidity disaster prices a dealer 131,350 stablecoins

• USDR suffered a liquidity disaster, revealing its illiquid belongings.
• A dealer misplaced every thing swapping USDR for USDC through the disaster.
• An MEV bot profited $107,002 from the arbitrage alternative.

The Actual USD (USDR) stablecoin lately discovered itself within the eye of a storm, revealing the pitfalls of the DeFi house.

A liquidity crunch on October 11 led to a dealer swapping 131,350 USDR for 0 USDC, incurring a whole loss. Right here’s what transpired:

The USDR liquidity crunch

USDR, a real-estate-backed US greenback stablecoin, confronted a liquidity disaster when customers requested over 10 million stablecoins in redemptions.

Though it was marketed as 100% backed, a stunning revelation emerged: lower than 15% of its $45 million in belongings had been backed by liquid TNGBL tokens, with the bulk counting on illiquid tokenized real-estate belongings.

The illiquidity of those real-estate belongings stemmed from their tokenization underneath the ERC-721 commonplace. This distinctive commonplace made it almost unimaginable to fractionalize these belongings, making a liquidity conundrum for investor redemptions. Moreover, the underlying actual property properties couldn’t be swiftly bought to satisfy withdrawal requests. Consequently, the USDR treasury was incapable of honouring these redemptions, leading to a disaster of confidence amongst traders.

Why USDR depegged regardless of being absolutely backed: Utilizing Illiquid asset backing liquid Asset

– USDR is 100% backed. 50% of them come from stablecoins and the remaining comes from Actual-Property

– When there’s a bank-run (Large Redemption of USDR), the Stablecoin liquidity within the… https://t.co/xOrsa5gpKU pic.twitter.com/OYhQ0twUUd

— Tom Wan (@tomwanhh) October 12, 2023

The expensive DEX swap

In the course of the USDR liquidity disaster, a dealer tried to withdraw their USDR holdings by executing a swap on the BNB Chain by way of the decentralized change (DEX) OpenOcean. The catch was the extreme depegging of USDR, which had plummeted almost 50% from its par worth as a result of liquidity crunch.

In a disastrous flip of occasions, the dealer acquired a grand whole of 0 USDC in return for his or her 131,350 USDR. This meant a whole and crippling loss on their preliminary funding. Within the risky world of DeFi, the place slippage charges on DEXs can attain as much as 100% in periods of poor liquidity, such incidents function a stark reminder of the dangers at play.

As a result of decoupling of the stablecoin USDR, this man by chance swapped 131,350 $USDR for 0 $USDC whereas panic promoting $USDR.

And a MEV bot efficiently arbitraged $107K.https://t.co/FHOJtaGcSDhttps://t.co/IYtoqar29N pic.twitter.com/USLF1qkVDK

— Lookonchain (@lookonchain) October 12, 2023

The story took an attention-grabbing twist as a maximal extractable worth (MEV) bot swooped in to grab an arbitrage alternative. Recognizing the substantial value discrepancy, this automated buying and selling algorithm profited handsomely, netting a staggering $107,002 in positive aspects by a well-timed arbitrage commerce.