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Does UST volatility put other stablecoin yield wallets at risk?

11 May 2022

UST and other stablecoins
Jacqui Pretty Chief Marketing Officer

Jacqui Pretty

Chief Marketing Officer

With UST recently breaking its peg, many SwissBorg users might be wondering if other US dollar stablecoin yield wallets are at risk.

The short answer is no - the assets within the USDC, USDT and DAI Smart Yield wallets are all segregated in different vaults (like all assets held within the Smart Yield program). Therefore, the USDC, USDT and DAI Smart Yield program have no exposure to UST risk.

In addition, user funds are 100% segregated from SwissBorg's own funds, and SwissBorg's own funds had no exposure to UST, therefore both SwissBorg and user funds are safe.

Why did SwissBorg offer a yield on UST?

As we shared in our Annual Meeting, the team is hard at work on custom yielding options, where users will be able to choose the level or risk and reward that best suits their investor profile. 

With this feature, users will be able to choose the asset they want to earn a yield on, and then they will be presented with a range of strategies - each of which display an expected yield rate and a risk level. Those who are comfortable with high levels of risk in exchange for higher yields will be able to choose the riskier options. Those who have a lower risk tolerance can choose the low-yield, low-risk options.

The addition of UST to the SwissBorg app is an early example of this concept in practice. There are now four different US dollar stablecoins in the app, each of which offer different yield levels. USDC, USDT and DAI all offer much lower yields than UST, but they are also lower-risk investments due to how they maintain their peg to the US dollar.

UST is a higher-risk stablecoin due to the fact that it has an algorithmic peg, and its stability is tied to the price of the Terra (LUNA) token. So adding this as an option in the SwissBorg app gave users with a higher risk tolerance the opportunity to earn a higher yield than what was available with the other tokens in the app.

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