Huobi’s HUSD stablecoin suddenly plunged 10 percent, but has since re-paired with the US dollar. According to Huobi, there was a “short-term liquidity problem” that caused the instability of the stablecoin. But if we’ve learned anything from the Terra debacle, it’s that stability means little in the crypto world.
Difference Between Terra and Huobi
Now it is not entirely fair to directly compare Terra and Huobi stablecoins. The Terra USD was in fact an algorithmic stablecoin, which was kept at the rate of 1 dollar with some skill. In hindsight, that turned out to be a mechanism that was mainly built on trust. Once that trust disappeared, Terra’s stablecoin was out of the question. Ultimately, blowing up the Terra ecosystem wiped out $40 billion in wealth.
Huobi’s stablecoin, the Huobi USD, is backed by cash reserves. So how could this stablecoin lose its peg to the dollar? According to Huobi himself, that’s because of the decision to close some accounts in specific regions to comply with some legal requirements. Due to the closing of the accounts of some “market makers”, the coin lost liquidity at the expense of the price. “Due to the time difference in bank opening hours, this caused a short-term liquidity problem that has since been resolved,” said Huobi.
Link repacked within 12 hours
Huobi Global, the Seychelles-based crypto exchange, also wrote a thread about the incident on Twitter. “HUSD re-paired with the dollar within 12 hours,” the major trading platform confirmed via Twitter. Although the peg has recovered, it is not the first time that HUSD has lost its peg to the dollar. Also in March 2020, during the COVID-19 crash, the HUSD rate fell to $0.97.
So it looks like there’s nothing exciting going on with Huobi, but it’s not a good thing. In the end, money is a matter of trust, and the more major parties damage that trust, the worse it is for the industry. It is therefore hoped that it will stay that way, but the fresh price drops of the crypto market are not promising in that regard.