Kava Network’s USDX tumbles to $0.65 as yet another stablecoin depegs

Quick Take

  • USDX dipped to almost $0.55 on Wednesday and is currently changing hands at $0.65.
  • Kava Labs said it offered UST as one of the collateral assets to mint USDX. 

Kava Network's native decentralized stablecoin USDX has lost its parity with the US dollar. This stablecoin had a market cap of more than $115 million before the depeg, according to CoinGecko.

USDX dipped to almost 0.55 on Wednesday, and is changing hands at $0.65 at the time of writing — well below its supposed dollar peg.

What may have caused USDX to lose its dollar parity is not clear. Unlike algorithmic stablecoins such as those provided by Terra, Kava Network's USDX can be minted as a loan backed by collateral reserves. 

A likely explanation coming via Twitter from Kava Labs, the development team behind the stablecoin, is that USDX lost the peg because of its exposure to terraUSD (UST) — an algorithmic stablecoin that recently collapsed. UST accounted for some of the collateral backing USDX, along other assets including kava, cosmos, wrapped bitcoin and ether.

As UST plummeted to $0.10, losing more than 90% of its value in a week, it caused collateral liquidations that dragged USDX along. The liquidations probably contributed to USDX dislocating from the one-dollar peg, according to Scott Stuart, co-founder and CEO of Kava Labs, the development team working on the stablecoin.