Not a hack but a stampede.
The bull market finished late on Iron Finance, but the IRON stablecoin quickly melted when a mass panic gripped the nervous TITAN token holders.
What was once a $2 billion TVL has dropped to ~$260 million, and the TITAN token from $60 to $0.
Are all algorithmic stablecoins bound to the same fate?
What happened to cause such panic?
Iron Finance is / was a “multi-chain partially-collateralized algorithmic stablecoin ecosystem.”
On Binance Smart Chain, IRON uses BUSD and their native token STEEL as collateral to maintain a peg at $1.
On Polygon, IRON used USDC and their native token TITAN to maintain the peg.
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 (not shown on chart), 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.
This means TITAN is now worth fractions of a cent, and IRON is around 70 cents - the percentage which is still backed by USDC.
There’s no VIP treatment in DeFi- celebrity investor Mark Cuban was one of the affected Iron Finance users, although he managed to get out on time, a claim which can be verified by checking his wallet activity on etherscan or polygonscan.
What’s next for Iron Finance?
We still await their post-mortem, but it seems that this situation can’t be fixed without changing the minting protocol, which is the basis of the entire IRON stablecoin.
No audit can stop a panic sell, but this flawed design should have been noticed sooner. Or perhaps the team did notice the flaw, and decided to sell their tokens first instead of trying to fix their broken platform.
Even when the team tweeted about the disaster and told their users to withdraw liquidity from all pools, they continued to take a % fee from those trying to redeem what was left of their money. Savage.
It won’t be long until ex-Iron Finance users are looking for their next opportunity.
Liquidity has no loyalty, where will that $2 billion TVL go now?
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