DeFi protocol Iron Finance suffered a massive impact to their TITAN token in what they described as a “bank run,” and what many in the Cryptoverse called a rug pull – but inadvertently providing an important warning for algorithmic stablecoins, with Dallas Mavericks owner Mark Cuban finding himself among the victims too.
IRON Titanium Token (TITAN) has suffered an almost 100% loss in a single day – going from its all-time high of USD 64.19 on June 16 to almost USD 0 on June 17. “Almost” means that the price reached USD 0.000000049491.
“Dear community, please withdraw liquidity from all pools,” said Iron Finance earlier today, promising to share a post-mortem “as soon as we have a better understanding of this bank run.” Per this initial post, USD Coin (USDC) collateral was available for redemption.
According to the comments that followed, the request wasn’t in regards to TITAN, but IRON, “a multi-chain partial-collateralized stablecoin” available on Polygon (MATIC) and the Binance Smart Chain (BSC), per the website. This collateral consists of two tokens: TITAN and Polygon-based USDC, as well as STEEL and binance USD (BUSD) on BSC.
In the second post, the team explained that since the price of TITAN dropped to 0, the contract does not allow redemptions. Twelve hours of timelock will need to pass before USDC redemptions are once again enabled.
At 7:50 UTC, IRON is trading at USD 0.68, after it dropped 32% in the past day. STEEL is also down 69% in a day, now changing hands at USD 0.56.
FortuneZ has reached out to Iron Finance for comment.
All this suggests that algorithmic stablecoins – those that “aim to maintain a stable price by automatically adapting the stablecoin supply to meet demand,” as Gyroscope Protocol’s Ariah Klages-Mundt wrote – come with risks of their own.
In regards to Iron Finance, Klages-Mundt, who is an applied math PhD student at Cornell University, argued that “the bank run is self-reinforcing with the price collapse of the Titan token that implicitly backs the algorithmic portion.”
It seems redemptions are stopped for a timelock given that Titan went to zero. Trading at a discount again to the collateral ratiohttps://t.co/pPCByVkrRO pic.twitter.com/N7K7h5tk9u
— Ariah Klages-Mundt (@aklamun) June 17, 2021
Per Anderson Kill Partner Preston Byrne, this incident “has to do with the fact that all algo stablecoins are, economically speaking, total bullshit. […] Algo stablecoins have been tried for years and years and they always blow up.”
(Photo : YouTube)