Pricing Aggregators Sparked Pax Dollar Depег
2 min read
Pricing Aggregators Sparked Pax Dollar Depег
The Pax Dollar (USDP) stablecoin recently became unpegged from its intended value of $1. According to a spokesperson from Paxos, the issue was not caused by any problems with the protocol itself, but rather with pricing aggregators. On April 16, the price of USDP briefly surged to $1.29 before returning to $1 within three hours. The spokesperson explained that pricing aggregators pull data from various trading venues, and the sharp price spikes on certain platforms impacted the aggregated price of USDP. Paxos clarified that they have no control over market activity on other trading platforms.
The depegging incident occurred at a time when USDP was experiencing a significant increase in market capitalization. Its market cap briefly rose from $140 million to $181 million when the price reached $1.29. As soon as USDP regained parity with the US dollar, its market capitalization fell back to $140 million. Currently, USDP has a market capitalization of $134 million.
Despite the temporary price fluctuation, Paxos assures users that USDP will always retain its redeemable value of $1 through their platform. Customers can create and redeem USDP for $1 using Paxos’ APIs, which offer 1:1 redemption 24/7. If other venues choose not to implement these APIs or fail to provide sufficient liquidity, it is up to the user to decide how to proceed with their transactions.
Based on CoinMarketCap data, Paxos’ USDP is currently ranked as the 13th largest stablecoin by market capitalization. The depegging incident had consequences for traders as well. An unidentified trader was liquidated for $529,000 worth of Circle’s USDC shortly after the Pax Dollar surged to $1.18. It is advised that traders using different platforms closely monitor the order books to avoid similar risks. Paxos recommends reviewing the order book before placing large orders, especially when dealing with stablecoins, and using limit orders to ensure a more controlled execution.
This is not the first time that the Pax Dollar has experienced significant price fluctuations. On March 13, 2020, USDP hit an all-time low of $0.87, while on November 16, 2021, it reached a high of $2.02, as per CoinMarketCap data.
The spokesperson’s explanation about pricing aggregators is not satisfactory. It’s their responsibility to ensure the stability of USDP, regardless of external factors.
I’m extremely disappointed with Paxos’ handling of this situation. They should have taken immediate action to rectify the depegging incident and prevent further losses. 😡
It’s frustrating that Paxos claims they have no control over market activity on other platforms. They should have anticipated this and taken preventive measures.