During the recent crisis involving the real estate-backed U.S. dollar stablecoin known as Real USD (USDR) on October 11, a trader faced substantial losses after swapping 131,350 USDR tokens for tokens effectively valued at $0, causing a complete loss of their investment.
This swap transaction took place on the Binance Smart Chain (BNB) through the decentralized exchange (DEX) known as OpenOcean. The significant disparity between USDR's market value and its par value, nearly 50%, was primarily due to a severe liquidity crunch. This scenario was promptly identified by an algorithmic bot referred to as the Maximum Extractable Value (MEV) bot, which swiftly executed an arbitrage trade to generate a total profit of $107,002.
In times of inadequate liquidity, DEX slippage can be as high as 100%, resulting in substantial differences between expected and executed prices. This event exemplifies the vulnerability of certain stablecoins during market turmoil, emphasizing the importance of sufficient liquidity to prevent such issues.
The USDR experienced a significant decoupling on October 11 when users initiated redemptions of over 10 million stablecoins. Although USDR is fully collateralized, less than 15% of its $45 million in assets at the time were backed by liquid TNGBL tokens, with the remaining portion supported by illiquid tokenized real estate assets. These tokenized real estate assets conform to the ERC-721 standard, making them indivisible and challenging to liquidate to meet investor withdrawal requests. As a result, the underlying real estate assets couldn't be swiftly sold to address investor needs, resulting in a loss of confidence among investors.
This incident underscores the risks associated with stablecoins and the need for greater transparency, liquidity, and robust asset backing mechanisms in the world of tokenized assets.
