These Stablecoins are “Losers”

What’s the first thing that comes to your mind when you think of stablecoins? 

Wait, let us be clairvoyants here and make a guess: that they’re stable. And their coins. 

Well, you couldn’t be more right.

Unlike cryptocurrencies, stablecoins are known for being pegged to other assets that ensure their stability and non-fluctuation. In most cases, they’re pegged to the USD or other fiat.  

Many of them have become popular over the years as a means of transferring funds worldwide, often for a much lower fee than the ones banks or apps offer you. Despite their widely-recognized utility, not all of them have managed to survive in the market. 

Let’s take a closer look at which coins have plunged into darkness with no chance of return.

Why do stablecoins fail?

Before we go any further, let’s explore reasons why stablecoins fail in principle. Here are some of them:

1. Not enough reserves to back them up: every stablecoin is pegged to another asset. If there are not enough resources, like money, then the venture is doomed by default, and it’s only a matter of time before it all crumbles.
2. Regulatory environment: Regulation is necessary as it defines the rules of the business and market game. However, sometimes, there can be too much of it (just think Gary Gensler), causing some projects to simply fail.
3. Algorithmic risks: If the coin is algorithmic, it has to rely on market confidence and arbitrage mechanisms. Sometimes, stress causes it to fail.
4. It’s the market, stupid. The market is an ever-changing environment that’s often based on confidence. So if confidence is lost, funds can disappear overnight, especially in partially or unbacked stablecoins.

Meet the losers

1. TerraUSD (UST)

Naturally, the first coin that comes to mind when it comes to exploring the ultimate losers is TerraUSD (UST), an ex-algorithmic stablecoin designed to maintain its peg with Terra's LUNA token, a non-stablecoin.

Launched in 2020 by entrepreneur Do Kwon, together with Bittrex Global, it became extremely popular and gained a reputation as one of the most scalable stablecoins.

The system promised stability and high returns, but it soon turned out to be nothing more than a hoax. 

In May 2022, as a result of the bear market and a loss of confidence, UST de-pegged. This caused a death spiral, with investors losing billions of dollars: $40 billion lost in market value almost overnight.

Following the implosion, Kwon became a fugitive, fleeing the U.S. and finding a temporary haven in Montenegro. Still, he didn’t manage to escape authorities who demanded that he be extradited. He is now awaiting a high-stakes trial that is poised to take place on January 26, 2026, in the U.S. District Court for the Southern District of New York. He’ll spend 2025 in jail and, if found guilty, faces up to 130 years behind bars and multiple civil lawsuits. In April 2024, a New York jury found Kwon liable for fraud in a case brought by the SEC.

2. Iron Finance (IRON)

“Becoming a millionaire is easy. Invest one billion into an algorithmic stablecoin! I kid, I kid. If you had invested $1 billion in the hot stablecoin protocol of this past week, you wouldn’t have $1 million. You might have $0,” this is the opening line of a 2022 article by Nat Eliason dubbed “Melting Iron: How to Lose $2b in One Day – DeFriday #5”

It is devoted to our second loser, stablecoin Iron Finance (IRON), which relied on a combination of collateral (like USDC) and algorithmic mechanisms. Though less well-known than TerraUSD (UST), it was once in the limelight for all the wrong reasons as well. 

At the beginning of its journey, IRON attracted a host of investors who cashed in on their incentivized liquidity pools. Back then, they were paying between 1% to 4.5% per day in TITAN rewards. 

The IRON protocol had more than $2.3 billion locked. This helped earn TITAN and thus maintain the peg and provide liquidity for people who wanted to buy IRON or TITAN. 

But things eventually did not go to plan.

In June 2021, a bank run took place after it became apparent that TITAN’s price growth and the insane ROI were a tad too good to be true. As a result, the value of IRON and TITAN crashed.

Even a celebrity got hurt as a result. This includes Shark Tank’s Mark Cuban, who endorsed the token just one day before the crash. He tweeted after: “I got hit like everyone else. Crazy part is I got out, thought they were increasing their [total value locked] enough. Than Bam.”

The company made its last tweet in 2021. 

3. NuBits

“Imagine you see a cup of coffee selling for $1.79 US. How much will it cost in NuBits? 1.79 NuBits of course. No complex math at the point of sale is needed. Buying and using NuBits at $1.00 US means you will no longer need to keep track of tax gains or losses on each purchase too,” this is the passage from the NuBits site that is still up and running. And offering its users plenty of use cases why NuBits is important.

Launched in 2014, it was designed to maintain its peg to the USD through a system of dynamic supply adjustments. It was also collateralized with Bitcoin.

None of this helped as it failed due to poor governance and inadequate reserves. Its value faded, and so did its relevance. 

Despite this, its forum is active, with people making posts from time to time. In June 2024, a user who goes by the name of TonyChen69 wrote, “I wanna sell 100K USNBT as 0.15$/NUBIT anyone interest. Please make a deal.”

Unfortunately for TonyChen69, nobody closed the deal.

4. Basis (Basecoin)

Here comes another failure. 

Basis was once a planned algorithmic stablecoin project that managed to attract a lot of funding from a variety of investors in 2018, the year it was launched.

However, its story proved to be short-lived as already in December 2018, the U.S. Securities and Exchange Commission (SEC) stepped in and killed the project, citing regulatory concerns.

As a result, the project’s creators issued a statement saying that they “considered many alternative paths to launch to try and comply with the regulatory constraints while keeping our product compelling and competitive.”

“These paths included launching offshore with the added utility to make bond and share tokens less financial in nature and starting off with a centralized stability mechanism. Ultimately, however, we don’t think any of the paths we considered are compelling enough for our users or our investors, or consistent enough with our vision to justify moving forward,” they wrote.

They added: “As such, we are sad to share the news that we have decided to return capital to our investors. This also means, unfortunately, that the Basis project will be shutting down.”

The last tweet was made in the very same year 2018.

5. Haven protocol

Up next in our loser stablecoin countdown is Haven protocol. 

Its original purpose was to maintain its peg through a privacy-focused blockchain. But as you might have guessed by now, not everything went to plan. In fact, not much did at all. The coin ended up suffering from significant price instability and governance issues that led to erosion of trust and use. 

“When we, the community, took over this project after the original founders abandoned it in 2019, we had one clear goal: to build a private stablecoin that anyone, anywhere, could use to transact and communicate securely and privately. This goal came close to being realized, but we were faced with growing challenges that in the end we couldn’t overcome, despite giving it everything we had,” Haven protocol’s goodbye statement reads. 

The authors add that the final blow, which they dubbed the most devastating, came after developers discovered a major exploit in 2024. The also noted that since the start of the audit, this vulnerability allowed a potential 1.3 billion illicit XHV to be minted through at least 42 transactions that their developers found.

“This estimated figure doesn’t include the amount of XHV that could have been minted between August 2023 and the start of the Audit. The unknown amount, or part of it, would likely be audited if we continued, thereby inflating the supply even further. Over 94% of the known supply is now controlled by the attackers,” they wrote.

As a result, it failed to gain traction and lost its peg. 

What about others?

While some stablecoins are not performing as badly and are still in the game, their reputation is often murky. Among them is USDT, one of the largest stablecoins by market capitalization.

It has faced a number of criticisms over the years. They include:

• Questionable reserves: In 2019, Tether disclosed that its reserves included not just cash but also other assets such as loans to affiliated companies, commercial paper, and other investments. Tether is therefore seen as a potential systemic risk. Besides, according to its reserve reports, a significant portion of its assets was held in commercial paper, but there are questions about its origin and quality.
• Opaque transparency: It never provided a full independent audit of its reserves. Furthermore, in 2021, Tether released attestations from Moore Cayman. It only showed snapshots of reserves without providing a full audit.
• Purported market manipulation together with Bitfinex: In 2019, the New York Attorney General (NYAG) claimed that Tether and Bitfinex covered up the loss of $850 million in client and corporate funds. Two years later, Tether and Bitfinex reached a settlement with the NYAG, agreeing to pay $18.5 million but not admitting wrongdoing. They also agreed to provide regular transparency reports about reserves.
• And more: For example, in October 2021, the Commodity Futures Trading Commission (CFTC) fined Tether $41 million for making misleading statements about its reserves between 2016 and 2019. 

Another stablecoin Truecoin (TUSD), a fiat-backed stablecoin pegged to the US dollar, arguably has the best reputation and is fully collateralized by U.S. dollars held in third-party escrow accounts.

But it’s still not as rosy as one would like to have, as it has still faced some scrutiny and challenges like other players in the stablecoin market. For example, despite USDT having a worse reputation, it still has a much larger market share than TUSD. Also, relying on third-party escrow accounts introduces potential vulnerabilities. This includes reliance on the escrow partners’ trustworthiness and solvency.

So, what’s the big conclusion?

Stablecoins fail for a variety of reasons. Some of them are intended to do that, with malign individuals being in charge of the endeavor, while others are simply poorly designed. What’s more, even the most famous stablecoins with large market shares are subject to occasional scrutiny and controversy. So, as always, do your research well before investing your funds.