The HUSD stablecoin witnessed a sharp decrease in value on August 18 2022, trading as low as US$0.84 on that day, resulting in investor panic and rumors that another collapse, akin to UST’s in May, would occur.
The further HUSD fell from its peg, the more intense and heated public discussion became. It is, in fact, fairly easy to analyze whether or not HUSD’s de-peg would result in another stablecoin collapse.
There are several stark differences between HUSD and UST.
What is HUSD and who owns it?
Built on the Ethereum network, HUSD is pegged to the U.S. dollar and backed by reserves fully vested in cash held in money market accounts. HUSD is also audited by credible third-party institutions such as Withum. HUSD published a breakdown of reserves that showed every issued token was backed by U.S. dollars held in cash in money market accounts a year ago.
The above stands in contrast to UST, which was an algorithmic stablecoin that was tied directly to the fortunes of the Luna cryptocurrency, a characteristic that led to its downfall.
Market watchers also questioned HUSD’s origins - is the stablecoin issued by Huobi Global? The answer is no.
Although HUSD first launched in 2018 on Huobi Global’s platform, its issuer is Stable Universal, which is not related to the exchange.
The debacle surrounding HUSD’s depeg from the U.S. dollar started at around 10:00am on August 18, when Huobi detected abnormal fluctuations in the price movement and trading volume of HUSD. At 10:10am, Huobi Global contacted Stable Universal to identify contributing factors and discuss stabilization measures, with major details nailed down by 10:30am.
The depegging of HUSD, which fell almost 15% below its dollar peg at one point, also resulted in liquidity issues for the stablecoin in the market. Market insiders have observed swift actions in response to the de-peg from Huobi. Firstly, Huobi Global posted a message on its official Twitter account to highlight its awareness of HUSD’s liquidity issues, while the team at Huobi Global worked with HUSD’s issuer to find a solution to restore its stability.
After discovering the liquidity issues, Huobi Global also enabled its users to freely convert HUSD to other stablecoins such as USDT or USDC, without any restrictions.
The liquidity issues proved to be short-lived as HUSD’s price started to rebound from around 10pm the same day – around 12 hours after the crisis started. By 2am on August 19, HUSD had reverted to its dollar parity. HUSD also posted a message on its official Twitter account the next day, on 19 August, to reassure the market that the liquidity issues surrounding HUSD had been resolved and the stablecoin’s peg restored.
The recent depegging of the HUSD stablecoin has inevitably drawn comparisons with the spectacular collapse of TerraUSD that occurred just three months ago. While the loss of the dollar peg has drawn considerable attention to both stablecoins, HUSD’s swift rebound suggests precise and timely actions on Huobi’s part that led to a crisis aversion.
Huobi’s deposit and withdrawal functions remained as per normal throughout the period HUSD lost its U.S. dollar peg. After HUSD recovered its peg in the morning, many users expressed their appreciation for Huobi Global on its global Twitter account.
HUSD’s temporary depeg did result in a significant increase in large scale deposits and withdrawals on Huobi Global’s platform. This anomaly, however, did not hamper operations, and Huobi Global was able to fulfill 100% of its transactions, testament to the platform’s healthy liquidity.
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