I’ve been researching past stablecoin projects and came across NuBits (USNBT). It was one of the earliest attempts at creating a stablecoin, aiming to maintain a 1:1 peg with the US dollar. However, it ultimately failed, with its value collapsing far below $1.
I’m curious about the design flaws that led to its downfall. What were the key issues with NuBits’ economic model, governance structure, or technical implementation that caused the peg to break? Were there specific events or market conditions that exposed these vulnerabilities?
I’d love to hear insights from anyone familiar with the project or with experience in the stablecoin space. What lessons can be learned from NuBits for future stablecoin designs?
Short version from my perspective (as a bagholder), hedging with the NuShares didn’t really work. When Nubits were sold the reserves went up and NuShares increased in value.
The problem was that NuShares holders would sell and take profits decreasing the value of NuShares which then would no longer cover the value of the Nubits.
When Nubits holders got nervous, they sold their coins and asking for USD. Nushares had to be printed and sold to buy USD, however that dilutes the Nushares and decreases their value.
So NuShares holders subsequently were not keen to buy and felt more like selling. That was an endless spiral to the bottom for both NuShares and Nubits losing its peg.
Lessons learnt is that keeping reserves in a volatile asset (NuShares) is not a good idea especially not if that asset is affected by the performance of the pegged coin.
There were some more events which worsened the situation, but that is lot of detail, the site is still there for everyone to read. I think its demise is well documented by various people with sometimes different opinions.
If I remember correctly, I believe that early on some of the reserve funds for NBT buybacks were lost due to exchanges that shut down. A bunch of different things like this and what Cybnate mentioned led to buyback support dwindling down to nothing.