NuBits Stablecoin Depegged

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NuBits

NuBits was a stablecoin with a whitepaper originally written on September 23rd, 2014, and the coin maintained a peg until 2016, when it was lost for a significant portion of the year. The peg was later restored, in the bitcoin crash of 2017-2018, and remained until March 2018, when the peg was lost for the final time. Recently as of 2021, the last exchange was suggested to have delisted the currency and they were having trouble affording hosting, with key community members leaving the project. It would appear that the NuBits currency is finally dead.

This is a global/international case not involving a specific country.

About NuBits

"NuBits – A Stable Digital Currency that Central Banks Envy" "Decentralized. Free. Secure. World's Best Stable Digital Currencies"

"Imagine you see a cup of coffee selling for $1.79 US. How much will it cost in NuBits? 1.79 NuBits of course. No complex math at the point of sale is needed. Buying and using NuBits at $1.00 US means you will no longer need to keep track of tax gains or losses on each purchase too, unlike other digital currencies like Bitcoin, Litecoin, or Dogecoin. Buying products and services using digital currencies has just been made easier with NuBits."

"This decentralized digital currency created by Jordan Lee, who also helped develop PeerCoin has become the hallmark of stability among digital currencies. Unlike bitcoin, NuBits has had a stable price since its introduction, except for small variations a couple of times and its price has remained close to USD $1.00."

"NuBits website has extensive information about how it manages to keep its price stable by listing two potential scenarios that may affect price stability."

"In the first scenario described, is where there is an excess demand for NuBits. In such circumstances, when demand exceeds supply the price of bitcoin and other digital currencies registers a significant increase. However, in a likely scenario of demand exceeding the supply, NuBits will introduce additional digital currency into circulation to make up for the demand. The release of new NuBits will be authorized by NuShareholders, and it will be put on sale on crypto-exchanges."

"Similarly, in an entirely opposite scenario where the supply is in excess, it takes the excess digital currency out of circulation to prevent the price from dropping below $1.00. The NuBits taken out of circulation will be parked on the blockchain, and it will stay inert till the time it is pushed back into circulation when demand increases. The NuShareholders may also buy these excess NuBits to get them off circulation."

"NuShareholders invest in NuBits and vote to authorize the release or withdrawal of the digital currency from circulation. Depending upon the performance of NuBits, these NuShareholders are issued dividends by the platform."

"In cases where the demand is low for a prolonged duration, NuShareholders can authorize the creation of new NuShares that are then auctioned to interested investors. By using this simple mechanism of controlling the flow while still maintaining decentralized structure, NuBits believes [it has] managed to achieve something that Central Banks are looking forward to replicate."

"It has been functional for over 3 years, ever since the beginning of the stablecoin concept, and is currently the only live example of a stablecoin in the Seigniorage Shares category. Well, mostly functional. NuBits has suffered two big crashes, with extended peg breaking. Fortunately for us, there are valuable takeaways to be garnered from those crashes."

"In 2016, NuBits’ peg infamously broke, and it remained broken for 3 months. The initial price drop happened between May 26th and June 20th, 2016. This was about the same time that Bitcoin’s price suddenly spiked, after 6 months of relative stability. It’s plausible that the drop happened because of the following: People who had capital in NuBits saw how Bitcoin was spiking. They wanted to get in on the spike, so they sold their NuBits in large quantities to buy Bitcoin. The NuBits peg was unable to handle the large sell-offs and broke. The price tanked and the peg stayed broken for an extended period."

"After NuBits crashed in 2016, its market cap grew 1,500% on Coinmarketcap between the end of 2017 and the beginning of 2018, going from $950k to $14 million. This is strange, considering the NuBits peg had been broken for such a long period in 2016. Their market cap had been stagnant for years, and suddenly it takes off. Was this spike just an accounting error, or had people suddenly decided NuBits was actually amazing?"

"Turns out the increase was real. However, it did not happen in one day. People were buying millions of NuBits in late December. The price of the NuBits stablecoin was notably above its $1 peg between December 20 and December 28, when it peaked close to $1.50(!)."

"What caused the increase? It’s clear when one looks at the Bitcoin price history. The NuBits high price period starts when Bitcoin had its “Christmas crash.” By December 22 there was a strong news narrative about Bitcoin crashing." "Bitcoin holders noted the dropping Bitcoin prices and got worried about an imminent crash. Converting BTC to USD is slow and can lead to taxation. So the worried Bitcoin holders converted their crypto assets to stablecoins rather than cash. Some choose NuBits. The very large influx of Bitcoin money doubled the NuBits market cap several times over."

"As long as there was a lot of uncertainty about Bitcoin’s stability, people kept buying large numbers of NuBits. Then, by the New Year, when Bitcoin temporarily normalized again, the large NuBits buy-ins stopped."

"Nubits repegged in September 2016 and saw its peg break again on March 21 of this year. Today the price has been fluctuating around 25 cents and NuShares, their volatile equity coin, is down to a market cap of around a million, compared to a NuBit pre-crash market cap around 10 million."

"This second crash was also caused by insufficient reserves. A lack of reserves prevented the NuBits team from being able to protect the NuBit price from a small demand dip. Then, when people noticed the price starting to drop, big NuBit holders got surprised and afraid and tried to get out of their position. Holders selling off dropped the price further, causing a rapid cascade."

"It’s not entirely clear why the reserves ran low in the first place. A contributing factor was that NuBit reserves were stored as Bitcoin. Most of the reserves were created a few months ago when Bitcoin was high and people bought a lot of NuBits. The value of the NuBits reserve fell as Bitcoin’s price fell."

"NuBits’ fate seems sealed. Even if the peg is restored, few will find themselves able to trust a stablecoin with a peg that has broken twice. NuBits holders are unhappy. A couple holders posted in the forum that it was a scam to promise stability and then have the peg break. They threatened legal consequences. Others were disappointed and left for Tether and/or TrueUSD."

"Overall it seems that Nubits was a victim of its own design: improperly diversified collateral and, on top of that, not nearly large enough reserves to maintain the peg."

"Price CA$0.0050" "$0.00366" "NuBits Market data is untracked."

"I may not be able to sustain our services for much longer without reimbursement. Hosting costs have been reduced and will be kept as low possible, but still amount to hundreds of dollars a month. I have paid over 6,400 USD in bills on behalf of NuNetwork for hosting, and 581 USD for NuBits Limited, plus other expenses." "The Chief of Liquidity Operations @Phoenix has not been seen on this forum for over three months. I hope nothing serious has happened to him. I believe he would not intentionally abandon us without notice, and leave me with these bills."

"I’m sad that I have failed to deal with my personal issues in time, and I was given ample opportunity to, but still aren’t quite where I need to be. I have had NuBits in mind most days for the past three years, but been practically useless for much of the time. I feel responsible, but I can only do what I am capable of, and so here we are. I’m sorry, for what it’s worth." "I now answered two kind persons offering to assist with funding, but apparently more actions were needed as I see we’re unlisted from SouthXchange. Plausibly because of the explorer being down. Who is capable and someone I can trust with server access to sort the explorer out?"

This is a global/international case not involving a specific country.

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

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The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - NuBits Stablecoin Depegged

Date	Event	Description
March 12th, 2018	Main Event	Expand this into a brief description of what happened and the impact. If multiple lines are necessary, add them here.

Total Amount Lost

The total amount lost has been estimated at $70,510,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

General Prevention Policies

The challenge with the NuBit stablecoin was that the coin was not backed by adequate reserves to maintain the peg. As a result, when confidence in the stability was lost, there was no mechanism to restore that the peg or that confidence.

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.