From TITAN To Titanic: Did DeFi Just Suffer Its First ‘Bank Run’?
Less than a week ago, billionaire investor Mark Cuban proclaimed:
“Crypto Businesses make more sense than you think and valuing tokens is easier and makes more sense than you think.”
He may well be correct, but just a few days later, his investment in TITAN – part of a “multi-chain partial-collateralized algorithmic stablecoin ecosystem” from IRON Finance – has hit an iceberg and sunk like the Titanic.
I got hit like everyone else. Crazy part is I got out, thought they were increasing their TVL enough. Than Bam.
— Mark Cuban (@mcuban) June 16, 2021
As the price of TITAN plunged to zero, Decrypt reports that IRON Finance called for all holders to withdraw liquidity from the pools after being hit by what it called a “bank run.”
From over $60 to $0 in hours…
While this collapse is getting a lot of attention due to Mark Cuban’s involvement, it is not the first of this breed of so-called algorithmic stablecoins to hit the wall.
I couldn’t even begin to predict what will happen to the next algo stablecoin, I just appreciate them as they come pic.twitter.com/OXUHQOVoEo
— Elmo’s Pool 2 Fund (@0xElm0) June 17, 2021
So what triggered the collapse?
Rekt.com reports that the incident started when TITAN became overpriced, perhaps due to users purchasing the token in order to farm TITAN pairs at ~50,000% APY. Some large TITAN sales were made and the price became volatile, making investors nervous, and leading them to also sell their tokens.
The IRON stablecoin then lost it’s peg due to TITAN dropping so rapidly.
This created a situation in which users could now redeem a token worth 90 cents, for 75 cents of stablecoin and 25 cents of TITAN. An incredible arbitrage opportunity which required minting new TITAN tokens each time.
The market was flooded with freshly minted TITAN, and a panic sale began, pushing down the TITAN price and therefore making the IRON stablecoin lose its peg even further.
This vicious cycle could not be stopped until the $1 peg was regained.
Despite briefly regaining the peg, the huge amounts of freshly minted TITAN flooding onto the market caused the price of TITAN to drop again, the peg to be lost, and the arbitrage opportunity to open back up.
As long as IRON is not at peg, TITAN will continue to drop, and as long as TITAN continues to drop, IRON will not be at peg… and everyone ran for the door.
Cuban told Decrypt via email: “Live and learn.”
Thu, 06/17/2021 – 09:20
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