Stablecoin HUSD loses parity with US Dollar; will this de-pegging cause a crypto crash?

Stablecoin HUSD, a cryptocurrency pegged to the US dollar, lost its parity with the US dollar after crashing over 16 per cent in the wee hours of Friday morning. HUSD was trading close to its peg of $1 in the early hours of Friday. The cryptocurrency then crashed to $0.8392, a 16.08 per cent fall in a matter of 8 hours as per data from CoinMarketCap. This is the lowest level the cryptocurrency has fallen to in the past three years since its launch.

Data from CoinMarketCap

Can this stablecoin de-peg trigger a crypto crash of the likes that TerraUSD did earlier this year?

Background

The latest downturn in the cryptocurrency markets had been triggered by the crash of the TerraUSD stablecoin which was minted by Terraform Labs. Although both TerraUSD and HUSD are stablecoins, they are slightly different from each other based on their inherent technology.

HUSD is an Ethereum blockchain network-based fiat collateralised stablecoin. This means the cryptocurrency’s value stays in parity with the US Dollar. Moreover, every HUSD token is backed by a US dollar.

The cryptocurrency has a circulating supply of 160,663,906 and the 24-hour trading volume has been $90,536,950, up a whopping 394.60 per cent over the last 24 hours.

This stablecoin is listed on Huobi Global, Gate.io, MDEX, Hotbit, Pionex, Hoo, 0x Protocol, Tokenlon, NUT MONEY, and BlueHelix Exchange.

Whereas TerraUSD was an algorithmic stablecoin pegged to the US Dollar. This means there were no real reserves backing the stablecoin.

Expert’s take

Neel Kukreti, crypto markets commentator and founder of Crypto Jargon stressed that the technology behind HUSD and Terra USD is different. Kukreti told Business Today, “$HUSD is fiat backed meaning for the amount of HUSD issued there is equal amount of fiat currency available in their reserves. Terra Luna's TerraUSD stablecoin was different as it was an algorithmic stablecoin.”

The crypto markets commentator highlighted how the TerraUSD had caused a crash in the crypto markets. He said, “ TerraUSD failed due to sudden high ‘sell’ pressure on the crypto and went into a death spiral crash.”

Kukreti concluded that based on this information, it is highly unlikely that this recent de-pegging might cause a crypto crash. He noted, “Therefore, HUSD will not cause a TerraUSD level crash as it can be saved by managing the liquidity issue on HUSD's end. Their team is currently working on the same.”

Terraform Labs stablecoin TerraUSD de-pegged in the month of May, triggering a widespread crypto crash. The cryptocurrency market cap fell over a trillion dollars in the crash and fell to $900 billion levels.

Also Read: WazirX announces change in fund transfer policy, dissuades users from shifting to Binance - BusinessToday

Also Read: 15 million crypto users left in limbo as Binance-WazirX Twitter feud continues - BusinessToday