On August 18th, popular crypto exchange Huobi’s stablecoin temporarily lost its USD depeg. HUSD traded at $0.82 for a few hours, before recovering its dollar value. Huobi announced that the depeg was caused by a short-term liquidity problem, and since has been resolved completely.
Although the depeg only lasted for about 24 hours, the HUSD community went into a frenzy fearing a complete breakdown of the stablecoin mechanism. Stablecoin depegs have been rampant in the past few months, causing significant worries across the entire crypto community. Most notably, Terra Luna’s UST depeg crisis created serious concern over the entire stablecoin industry.
Had HUSD’s depeg continued, it would’ve been the first fully-reserved centralized stablecoin to fail. Fortunately for the crypto community, that wasn’t the case. Huobi provided an official statement shortly after to relieve some of the worries across the community.
What caused the HUSD stablecoin to depeg?
The Huobi team explained that the depeg was a result of the company’s decision to shut down several market maker accounts in specific regions. The shutdown was an executive decision to ensure that the crypto exchange was complying effectively with the regulations in those regions. The sudden high liquidity of those accounts led to the short-term depeg of HUSD.
The depeg event was also exacerbated because of the time zone difference between those regions and the USA. The financial controllers were not aware of the ongoing liquidity problem until Friday morning in the US, and HUSD was already trading below its dollar peg at that point.
Recently, Huobi has been optimizing its services across the globe to ensure that all regulations and compliance are promptly followed. Earlier this week, the exchange stopped its crypto derivatives trading services in New Zealand quoting regulatory concerns.
Given that the stablecoin market is significantly shaken up due to recent events, any future events with HUSD can cause serious damage to the entire community. Acala network’s aUSD stablecoin also lost its peg by 99% last week, after hackers managed to mint 1.2 billion aUSD without the required collateral.
Stablecoin has become a critical part of the crypto industry, especially as DeFi lending and borrowing protocols have been massively popularized recently. However, with high-profile security incidents across the entire crypto industry and the potential breakdown of liquidity mechanisms, the stablecoin worry might continue to surface for some time.
