The decentralized finance (DeFi) protocol Neutrl has suspended the issuance and redemption of its synthetic dollar NUSD after an undisclosed issue impacted its reserves. The cause and potential extent of the devaluation remain unknown.
On Thursday, Neutrl announced the suspension of other protocol functions on legal counsel's advice while it assesses the implications. The protocol did not specify which asset or counterparty is affected, whether the reserves have actually incurred a loss, or when operations will resume.
The structured yield protocol Strata later reported suspending issuance, redemption, and related functions for contracts on its Neutrl market, which supports several products related to NUSD. Strata stated that its other markets continued to operate.
Approximately 53.6 million NUSD are in circulation. The suspension prevents approved counterparties from exchanging the token for its backing assets while Neutrl determines if the reserves have depreciated. The company will provide timelines and next steps when such information is available.
Cointelegraph reached out to Neutrl for comment but had not received a response by the time of publication.
NUSD Supply Shrinks 18% in 30 Days
According to data from RWA.xyz, NUSD's market capitalization was approximately $53.6 million on Friday, having declined 18.4% over 30 days. Its monthly transfer volume dropped 72.4% to $71.4 million. These metrics do not confirm whether the earlier supply contraction was linked to the reserve issue.
The synthetic dollar aims to track the U.S. dollar using yield-generating crypto assets and market-neutral strategies, rather than bank-held deposits. According to RWA.xyz, NUSD was trading around $0.9984. Over the previous 30 days, it had 615 holders and 347 active addresses.
On May 25, the verification platform Accountable reported that Neutrl's dashboard continuously provided cryptographic proof of NUSD reserve compliance with the protocol's obligations.
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However, in a February assessment, the risk advisory team BA Labs labeled Neutrl's proposed integration as higher risk due to counterparty, operational, and liquidity risks. The team stated that direct redemption was only available to KYC or KYB-approved counterparties, and requests exceeding the liquidity buffer could be queued with a target execution time of 48 hours without guarantees.
BA Labs estimated NUSD's supply at $226 million and its reserves at $233.7 million. This implied a collateralization ratio of 103.6%. The team assessed that over 87% of reserves were held via Fireblocks, with smaller amounts on centralized exchanges.
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