A Stablecoin Has Lost Its $1 Peg—It’s Down 85 Percent

The MSUSD token, linked to MainStreet Finance, experienced a sharp decline amid rising liquidity concerns.

According to blockchain security company PeckShield, while the MSUSD price, which should be pegged at $1, has fallen by as much as 85%, the usage rate in the msY/$USDC market on Morpho has reached 100%.

The increasing risks associated with this market have brought the AlphaUSDC Delta V2 strategy, managed by AlphaPING, into the spotlight. According to the data, AlphaUSDC Delta V2 has approximately 30% exposure to this market, which is about $18 million.

The sell-off came after Accountable terminated its validation agreement with MainStreet Finance. This development raised questions about MainStreet’s proof-of-reserves infrastructure.

MainStreet developers, in a statement, argued that the protocol is fully collateralized. The organization stated that the problem stemmed not from asset loss or deterioration in portfolio quality, but from the disabling of a third-party proof-of-reserves panel.

MainStreet stated in its announcement, “This is an infrastructure and reporting issue, not a solvency issue.” The protocol noted that due to the dashboard’s shutdown, the oracle supporting the Morpho market is expected to cease operations within the next 24 hours, causing concern in the market and driving up borrowing rates.

MainStreet announced that it recently closed some short-term box spread positions and transferred over $8 million in $USDC to the mint in order to support liquidity. The protocol also stated that it is in discussions with alternative proof-of-reserves providers, is gradually resolving positions to restore liquidity, and is prepared to step in as a “liquidation provider and liquidator of last resort” if needed.

According to the organization, MainStreet’s core portfolio consists largely of box spread positions. These positions are designed to converge to fair value at maturity and are therefore predictable in terms of NAV when held until maturity. However, MainStreet also acknowledged that liquidating these positions before maturity is not always without problems.

The statement indicated that early exits could incur transaction fees, widening bid-ask spreads, market maker discounts, and deductions depending on liquidity conditions. MainStreet maintained that the portfolio was fully backed, while claiming that the immediate liquidation of assets depended on current market depth and market maker appetite.

*This is not investment advice.