Yesterday evening, the price of Iron Bank Euro (ibEUR), a stablecoin, plummeted by 60%, plunging it into a decoupling crisis. The approach to re-pegging ibEUR to the Euro remains uncertain, causing concerns about the stability of stablecoins in the market.
Background:
S&P’s First Rating for Stablecoins: USDC Receives Grade 2, USDT Limited to Grade 4 Due to Transparency Issues
The risk of stablecoin decoupling has attracted high attention from the industry, and the three major credit rating agencies including Moody’s and S&P have started to study stablecoins. Moody’s has launched an AI tool specifically targeting the risk of stablecoin decoupling, while S&P has conducted its first official rating for stablecoins on the 13th of this month.
According to CoinDesk’s report, yesterday evening, Iron Bank Euro (ibEUR) stablecoin experienced a severe price drop, with its price briefly falling to around $0.38, a staggering 60% drop. Although the stablecoin has since recovered and is currently priced at around $0.7, it has not shown signs of re-pegging to the Euro.
Reasons for Decoupling:
The main reason for this decoupling is that a trader withdrew nearly $900,000 worth of USDC liquidity from the Curve pool, which supports most ibEUR transactions. This led to insufficient USDC liquidity in the pool, causing market imbalance and resulting in the price of ibEUR falling from the usual $0.97 to a minimum of $0.38.
Unclear Target Price for Re-pegging:
Currently, the path for ibEUR stablecoin to re-peg to the Euro seems unclear. The protocol supporting ibEUR, Iron Bank, is not actively maintaining its peg and lacks sufficient financial liquidity to stabilize this asset.
Meanwhile, Funk, a Telegram chat administrator for Iron Bank’s partner Keep3r Network (Fixed Forex), mentioned that Keep3r Treasury can trade discount-priced liquid assets for ibEUR and use them to partially repay Iron Bank’s debt. However, the execution of this action depends on Keep3r’s multi-signature decision.
Another solution is to allow the Curve pool to automatically return to the target price. Currently, the ibEUR liquidity in the pool is slightly higher than USDC, accounting for 51.89% and 48.11% respectively.
For the future prospects, the effectiveness and implementation timeline of these solutions are still unclear. Therefore, the long-term stability and feasibility of ibEUR stablecoin remain uncertain.