Yesterday wasn’t a good day for holders of SafeDollar, a stablecoin on the Polygon network. Instead of keeping its peg at $1 per coin, it plummeted to $0 due to a hacker attack. Liquidity poolers also lost a quarter of a million dollars worth of USDC and USDT.

What can we learn from this fiasco? Here are three takeaways.

First, it contrasts the two types of stablecoins on the market: asset-backed and algorithmic. Asset-backed stablecoins like USDC hold real dollars in a bank account, so it’s much harder for them to lose their $1 peg. Algorithmic stablecoins like DAI, on the other hand, use economics and code to maintain their value, which is riskier since crypto is still in its early days and something can always go wrong (ala SafeDollar).

Second, it demonstrates the risk of joining a liquidity pool, especially an unproven one. Every participant who was pooling USDC and Tether lost their coins. Remember, when you lock-up your coins in a liquidity pool, think beyond the APR, there’s real risk involved.

The last takeaway is that this story might yet have a happy ending. SafeDollar said that they would compensate the victims (details not released at the time of this article). It wouldn’t be the first time; crypto is full of examples where well-funded projects pay back their victims after a screw-up. Let’s hope history repeats itself!

Enjoyed this article? Please share it, follow us on Twitter, and subscribe to our free Friday newsletter! It helps us out and keeps your investing mind sharp. Win-win!