Solstice Reveals USX Stablecoin Depeg Rooted in Secondary Market Liquidity Crunch
Another stablecoin wobbles—Solstice pins the blame squarely on secondary market mechanics.
The Liquidity Mirage
Stablecoins promise a digital dollar, a rock in crypto's volatile sea. But that rock just turned to sand for USX holders. The protocol's backer, Solstice, didn't mince words: the depeg wasn't a failure of primary reserves or smart contract code. The culprit? Thin, unreliable liquidity on secondary trading venues. The very exchanges meant to reinforce the peg became its weakest link.
When the Market Dries Up
It's a classic crypto tale—on paper, the math works. In practice, a few large sell orders on a shallow order book can send the price spiraling. Without sufficient market makers or arbitrage bots ready to swoop in, the temporary slip becomes a full-blown de-peg. Solstice's statement highlights the often-overlooked fragility lurking just off-chain, in the realm of centralized and decentralized exchanges where price discovery actually happens.
A Wake-Up Call for 'Stable' Assets
This isn't just a USX problem. It's a stark reminder that a stablecoin's health is only as strong as its least liquid trading pair. The incident throws a harsh light on the industry's dependence on market dynamics that can evaporate faster than a meme coin's gains. It's the financial engineering equivalent of building a fortress with a cardboard drawbridge.
Another day, another depeg—proving once again that in crypto, 'stable' is often just a suggestion waiting for the right market stress test. Maybe the real stable asset was the friends we made along the way... or just actual dollars in a bank, if you're into that sort of boring, reliable thing.
Solstic insists collateral intact but trading venues dried up
“The Solstice team can confirm the underlying NAV and the custodied assets backing USX on the Solstice side remain entirely unaffected,” the company said, adding that they “have requested an immediate and additional third-party attestation report that the team will post once available.”
The announcement stated that the incident was purely a secondary market liquidity issue that both the Solstice team and their market makers are addressing immediately.
“We will continue to inject liquidity into the secondary markets to ensure stability. 1:1 redemptions in the primary market remain fully available,” the Solstice team wrote on X.
The distinction between primary and secondary markets is crucial to understand what happened to Solstice’s USX. Primary markets allow users to mint or redeem stablecoins directly with the issuer at face value, while secondary markets involve trading on decentralized and centralized exchanges where prices are set by supply and demand and can deviate during liquidity crunches.
When exit liquidity evaporated on Solana-based trading venues, sell orders amplified price movements far beyond what WOULD occur in deeper markets.
Where’s the price now?
As of the time of writing, USX was priced at $0.998 according to CoinMarketCap data.
USX was launched in September with backing from digital asset investment firm Deus X Capital and support from Galaxy Digital, MEV Capital, and Bitcoin Suisse.
The Solana-native synthetic stablecoin was designed to deliver yield through delta-neutral strategies while maintaining full collateralization in USDC and USDT. At launch, the protocol secured over $160 million in total value locked (TVL), which now sits at over $317 million.
USX adds to past stablecoin stress events
The USX depeg isn’t the first to hit the stablecoin market, and the probabilities that it would be the last are slim.
From TerraUSD crashing as a result of fraud from the founder in 2022 to the March 2023 USDC depeg following Silicon Valley Bank’s collapse, there have been incidents in the market that have greatly impacted the market.
Although none is similar to USX in terms of what led to the depegging event and also the scale of users.
Ethena’s synthetic stablecoin, USDe, which is the third-largest stablecoin in terms of market capitalization, also experienced a major depeg incident on Binance in early October. This happened during the flash market crash that hit the market after President TRUMP mentioned that he was going to impose new tariffs on China.
Binance later cleared the air, stating that the depeg incident that affected the USDe came from their own end and did not stem from the issuer.
Solstice has said that it would publish the additional third-party attestation report once completed, though the firm did not specify a timeline. It has also published an update on what happened, alongside a Q&A, as it tries to assuage the fears of its users.
In that post, it stated, “We are actively working with internal and external parties to deepen secondary market liquidity to reduce the impact of large withdrawals in the future.“
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