The recent destabilization of Pax Dollar (USDP), a stablecoin, where its price unexpectedly soared to $1.29 from its usual peg at $1, was primarily attributed to anomalies in pricing data sourced from various trading venues, rather than any inherent issues with the stablecoin’s protocol itself.
This incident occurred on April 16, but the price stabilized back to $1 within three hours, as recorded by CoinMarketCap.
A spokesperson from Paxos, the entity behind USDP, explained the situation to Cointelegraph, stating, “These platforms pull pricing data from trading venues.
Yesterday, there were sharp spikes in price on certain venues that impacted the price of USDP on pricing aggregators.
“Paxos does not control markets or trading activity on other trading venues.”
This spike in price coincided with a notable increase in the market capitalization of USDP, which temporarily jumped from $140 million to $181 million.
Despite this brief disruption, the market cap of USDP reverted to its previous level of $140 million when the coin’s value returned to $1.
As of now, the market capitalization stands at $134 million. Paxos reassures that the USDP can always be redeemed at its intended value of $1, stating, “Paxos always values USDP as $1, and customers can always create and redeem USDP from Paxos for $1.
Paxos offers APIs that offer 1:1 redemption 24/7.
If venues choose not to implement these APIs or don’t want to make sure liquidity is supported, it is up to the user to determine the best approach for ordering.”
This fluctuation was not isolated.
A trader faced a significant loss, being liquidated for $529,000 in Circle’s USD Coin, shortly after USDP peaked at $1.18 on the same day.
The incident highlighted the risks involved in trading stablecoins, especially on platforms that may not support proper liquidity or accurate pricing.
Paxos issued further advice for traders, emphasizing the importance of cautious trading practices: “When trading on any venue, users should take a look at the order book before placing a larger order.
Particularly for stablecoins, users should make sure they use limit orders,” a spokesperson advised. Historical data from CoinMarketCap shows that USDP has experienced other substantial price swings, hitting a low of $0.87 in March 2020 and a high of $2.02 in November 2021.
Presently, USDP ranks as the 13th largest stablecoin by market capitalization.
To submit a crypto press release (PR), send an email to sales@cryptointelligence.co.uk.
