The NEAR protocol, one of the more well-known networks, serves as a foundation for several blockchain ecosystems. One of these is USN, a stablecoin that was created in April on top of NEAR and is managed autonomously by Decentra bank.
Decentral Bank created safeguards that would raise the red flag if there was a risk of undercollateralization in an effort to avoid a massive failure similar to that of Terra earlier this year.
Sadly, the devs were alerted on October 24 that there were over 40 million USN in circulation without any funds backing them up in USN vaults. Although there were supposedly early warning indications as far back as spring, they were not believed to be strong enough to support the prompt action adopted.
In response to a recent issue with USN, the @NEARFoundation is funding a protection Programme to safeguard USN holders.
More details below 👇https://t.co/NDMZUO2Wim
— NEAR Protocol |At Consensus! (@NEARProtocol) October 24, 2022
According to the protocol, “In spring 2022, risk of undercollateralization did in fact materialize, resulting in a collateral gap or shortfall of approximately $10M growing to $21M as of now, considering that ~5M NEAR were left in the reserves and kept falling in price.”
NEAR launches protection scheme
This resulted in the NEAR Foundation team making the decision to launch a protection scheme in order to save the stablecoin and safeguard users.
It is funded by a $40 million donation from the NEAR Foundation to White Knight Protection, an Aurora Labs subsidiary, and comprises of a cash injection to restore the stablecoin to full collateralization.
The protection program’s funds will only be transferred after rigorous KYC and AML checks have been made to confirm the validity of the eventual recipient. Additionally, Aurora Labs has promised to only use the money to fully compensate users. New USN production has been put on hold, and only claims for burned USN produced before the announcement will be taken into account.
In September, NEAR Foundation collaborated with Caerus Ventures to introduce a $100 million venture capital fund, as TheCoinRise reported.
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