The limited ripple effect at present and the recurring nightmare.

The stablecoin USDX, which was once said to have a market capitalization of approximately 50 billion yen, suddenly lost its peg to the dollar, plummeting to $0.37. What happens to the cryptocurrency industry when trust is lost in a token that claims to be stable? This incident may highlight the difficulties in designing stablecoins and the fragility of their reliability in the DeFi space.

Considering that USDT, a leading stablecoin, had a market capitalization of nearly 30 trillion yen as of November 7th, the scale and impact of the USDX incident could be considered limited. However, it was used as collateral on multiple DeFi platforms. In early November, it rapidly lost its peg, temporarily falling to $0.37 on the 6th.

The background of this crash is suspected to be that a wallet allegedly linked to founder Flex Yang used USDX as collateral to borrow large amounts of other stablecoins from multiple lending protocols, thus depleting liquidity. The borrower allegedly failed to repay and withdrew funds from multiple lending pools.

In response to this situation, Lista DAO conducted an emergency governance vote on November 6th and decided to forcibly liquidate the problematic USDX collateralized loans. The vote passed unanimously, and they collaborated with liquidity managers Re7 Labs and MEV Capital to adjust the oracle price and execute the liquidation of the relevant positions.

PancakeSwap also issued a warning to users and appears to be strengthening monitoring of related pools. Thanks to these swift responses, the ripple effects of the massive unpaid debt on depositors were temporarily contained.

USDX is a synthetic stablecoin that maintains its value at $1 through a long-short strategy using cryptocurrencies, and such complex hedging mechanisms are susceptible to malfunction under extreme market fluctuations. It has been suggested that the approximately $100 million outflow from Balancer on November 3rd caused losses in the USDX backing positions, leading to a run on redemptions and a depegging of the stablecoin.

During this crisis, a notable trend was the borrowing of other stablecoins using USDX as collateral. It is speculated that this was driven by intentions to hedge against a potential USDX crash or to secure profits.

In fact, addresses linked to Yang are said to have borrowed other stablecoins from multiple DeFi lending markets using USDX as collateral, and immediately transferred the acquired funds to external exchanges. They reportedly borrowed up to the limit and then exchanged the remaining USDX for USDT on PancakeSwap, demonstrating a thorough approach. This could be interpreted as an attempt to secure funds regardless of interest payment costs, ultimately aiming to shift the final losses onto the protocol.