• Solana-based UXD Protocol is looking to sunset its stablecoin due to a lack of product-market fit, according to an announcement on Monday.

• The team said it would return its multi-million dollar insurance fund to token holders and investors if approved by DAO stakeholders in a governance vote. 

Solana-based stablecoin protocol UXD is shutting down, according to an announcement on its governance board on Monday, contingent on the approval of a governance proposal. The team said it would return its multi-million dollar insurance fund to token holders and investors — a process expected to take up to two years to complete. 

“This decision was not made lightly, as UXD has successfully navigated a number of challenges in the past. The UXD stablecoin has been stable through various market regimes and is integrated across many of the top DeFi protocols on Solana, and reached a maximum TVL of $40 million,” the team wrote in a statement.

“Accordingly, we think sunsetting the project, and returning capital to investors is the best use of capital and team resources,” they continued.

Token holders will be able to vote on the terms of the winddown, including how to disperse or destroy some $10 million worth of unvested UXP governance tokens. UXP, which launched via a $57 million token sale to 3,676 investors, is up 40% since the announcement. Stakeholders will be able to vote for the next seven days. 

Although stablecoins are one of the most clear-cut use cases for blockchains, many so-called algorithmic stablecoins have failed to find product-market fit. The team explained it was sunsetting the protocol due to a lack of liquidity and interest saying the product was “not exciting enough for defi users and does not offer enough advantage over centralized stablecoins.”

The two largest stablecoins, Tether’s USDT and Circle’s USDC, have a combined market cap above $140 billion — though that figure is heavily weighted towards the tether stablecoin. Both assets are backed by cash and other investments held by asset managers.

Launched in 2021, UXD pivoted from a system that relied on a delta-neutral hedging strategy leveraging perpetual futures decentralized exchanges to its “Asset Liability Management Module,” which pegged the stablecoin to the dollar through “various low volatility [assets] with yield generating strategies.” It has a current market capitalization of $7.45 million.

Its original perpetuals arbitrage strategy leveraged the Drift Protocol and Mango Markets decentralized exchanges. UXD lost nearly $20 million during Avraham Eisenberg’s major MNGO exploit, forcing it to temporarily pause stablecoin minting. 

The UXD token, not to be confused with the UXD Criptodólar launched by Buenos Aires-based payments firm Ripio, is currently backed by Credix Fintech pool, which holds a number of illiquid investments that complicates the stablecoin’s redemption process. The team said it will mint enough UXD so that holders can redeem their funds in USDC, though it will take months to fully liquidate its reserves.

Simultaneously, UXP holders can withdraw against the insurance fund during a six-month token conversion phase. 

The DAO vote has just under 1 million votes in favor of the plan to sunset the project, and zero no votes.

The UXD Protocol, overseen by an eponymously-named DAO, raised $3 million in seed funding in a round led by Multicoin Capital with support from Alameda Research, CMS Holdings, the Solana Foundation in addition to Solana founders Anatoly Yakovenko and Raj Gokal, among others. 

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