Is Acala USD Losing Its Peg Again? aUSD Drops To 80 Cents

The aUSD price is still slipping.

In a tweet today, PeckShieldAlert reveals that Acala USD (aUSD) is down to $0.81, moving further away from the dollar peg.

#PeckShieldAlert Stablecoin $ausd at $0.81 pic.twitter.com/I2OG4phXRg

— PeckShieldAlert (@PeckShieldAlert) August 22, 2022

It is worth noting that aUSD first lost its peg on August 13, forming new lows below $0.1 on August 14. The team confirmed that the incident resulted from an erroneous configuration in its newly launched iBTC/aUSD liquidity pool that allowed bad actors to mint over 3 billion aUSD in excess. 

We have identified the issue as a misconfiguration of the iBTC/aUSD liquidity pool (which went live earlier today) that resulted in error mints of a significant amount of aUSD
1/

— Acala (@AcalaNetwork) August 14, 2022

Notably, following the exploit, the team swooped into action, pausing the Acala parachain and launching a community vote to burn about 1.29 billion aUSD of the excess aUSD in supply that developers had traced to 16 wallets. The community swiftly passed the proposal with a 95% vote in favor. Consequently, the move allowed the token to rise over 10,000% in 24 hours edging closer to its peg at above $0.9.

The recently passed community governance referendum has now been executed.

1,292,860,248 total erroneously minted aUSD have been returned to the honzon protocol and burned.

Details in thread below ⤵

— Acala (@AcalaNetwork) August 16, 2022

Furthermore, on Sunday, the community passed a referendum to burn an additional 1.68 billion aUSD minted during the exploit traced to one of the 16 accounts. Notably, these coins have since been burnt, leaving the remaining excess supply in millions.

This referendum has now been passed and executed on-chain. https://t.co/mkXf4XKWr2

— Acala (@AcalaNetwork) August 21, 2022

While some have praised the Acala team for its swift response, others have raised concerns about centralization. Some users have noted that despite their belief in the fairness of the actions taken, it is worrisome that the development team of a decentralized network can pause the network operations and access user funds through a vote.

While the Acala team has yet to address these centralization concerns, today, the team has released a blog post updating the community on its progress. The team notes that its focus in the coming weeks is to provide trace results for the remaining error mints, work to resolve imbalances in affected liquidity pools affected by the excess mints, and create a plan for recovery and resumption of operations.

Notably, stablecoins, primarily algorithmic stablecoins that maintain their peg through math and arbitrage incentives, have come under increased scrutiny following the Terra debacle in May. The de-pegging of Terra USD (UST) led to over $40 billion of investor funds being wiped off the market and is fingered as the catalyst for the subsequent collapse of several crypto lending firms.

It is worth noting that the Acala Network was the first chain to win a Polkadot Parachain auction. The network has two tokens, ACA, the governance token, and aUSD, the algorithmic stablecoin for DeFi activity. Notably, unlike the Terra debacle, an aUSD de-pegging is not expected to affect DOT significantly.

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