NFTX Token Holders Weigh Proposal to Diversify Treasury After USDC Depeg

Token holders of NFTX, which bills itself as a liquidity protocol for non-fungible tokens (NFT), are weighing a proposal to diversify its treasury

important conversation in crypto and web3! Secure your seat today Token holders of NFTX, a liquidity protocol for non-fungible tokens (NFTs), are considering a proposal to diversify its treasury following an incident where one of its investments, the USD coin (USDC) stablecoin, briefly lost its peg to the U.S. dollar.

The USDC incident earlier this month highlighted concerns over the volatility of stablecoins, which are typically pegged to fiat currencies or other assets to provide a stable store of value. In this case, the USDC briefly traded below $0.98 on centralized exchanges, while its peg on decentralized exchanges slipped to around $0.99.

The stablecoin's issuer, Circle, later stated that the depeg was caused by a delay in processing large volumes of burn transactions, which resulted in a temporary imbalance between the circulating supply of USDC and its dollar reserves. The issue was resolved within a few hours, and the USDC eventually regained its peg.

However, the incident raised questions over the stability of stablecoins, especially during periods of market turmoil or technical difficulties. As a result, some NFTX community members are now proposing to diversify the protocol's stablecoin holdings.

Currently, NFTX has around $20 million in its treasury, excluding its own governance token. Of this amount, about $1.3 million is invested in USDC. The proposal suggests moving $2 million of the treasury to other stablecoins.

"Holding the stablecoin portion in USDC has already shown to be suspect to depeg in case of maximum chaos," 0xchop wrote in the proposal. "Diversifying stablecoins into multiple stablecoins has to be considered if it does not impact operations too much."

The proposal vote will conclude once it reaches a quorum of 50,000 tokens, which is 10% of the governance token's circulating supply. At the time of writing, the vote has reached roughly 49,000 tokens, with 94% of the contribution coming from the address that launched NFTX's infrastructure.

The proposal is still open for discussion and may be amended before the vote concludes. If approved, the NFTX team will allocate a portion of the treasury to other stablecoins, likely chosen based on their market capitalization, liquidity, and regulatory status.