Iron Finance
From Invertopedia, the encyclopedia of how things fail
Iron Finance ran IRON, a stablecoin meant to hold $1 with a reserve of about 75 percent USDC and 25 percent of its own token, TITAN[3]. Its total value locked rose from about $30 million to about $1.2 billion in under a month[1]. On June 16, 2021, a run sent TITAN from about $64 to almost zero within hours, because every IRON redeemed minted more TITAN into a falling market[1][2][5]. The team called it "the world's first large-scale crypto bank run"[1][3].
Contents
The bet
IRON would stay at $1 without being fully backed by dollars. Redeeming IRON paid out partly in USDC and partly in newly created TITAN[1][3], and arbitrage between the two coins was supposed to pull the price back to the peg[4].
TITAN was the upside. Liquidity providers were offered huge yields in it: one exchange showed an annual yield of 4,151,343,175 percent in a screenshot posted to Reddit[3]. TITAN went from about $10 on June 9 to a high of $64.19 on June 16[2].
What happened
| May 20 – Jun 12, 2021 | Total value locked climbs from about $30 million to about $1.2 billion.[1] |
|---|---|
| Jun 13, 2021 | Mark Cuban writes a blog post about his DeFi investing that features TITAN and his liquidity in a DAI/TITAN pool on QuickSwap.[4] |
| Jun 16, 2021, ~10 a.m. UTC | Large holders pull liquidity and sell TITAN. It falls from about $65 to $30 in two hours, then recovers to about $52 within an hour.[1] |
| Jun 16, 2021, ~3 p.m. UTC | A second run begins. Holders redeem IRON and dump the TITAN they receive, which mints more TITAN and drives the price toward zero.[1] |
| Jun 16, 2021 | TITAN reaches $0.00000003. Redemptions stop working for a time as the price nears zero.[1][3][5] |
| Jun 16 – 17, 2021 | Cuban says he "got hit like everyone else" and calls for rules on what can be called a stablecoin.[4][5] |
| Late Jun 2021 | IRON trades around $0.70 to $0.77, well off its peg. The team's post-mortem says an IRON v2 will launch later.[1][2] |
The kill shot
A quarter of the backing was the project's own token. Defending the peg meant printing more of it, so the harder people ran, the faster that backing turned to nothing.
When IRON slipped below $1, holders redeemed it for USDC plus newly minted TITAN and sold the TITAN. More selling meant more minting, which meant a lower price, which pushed more people to redeem[1]. The team said its 10-minute time-weighted price oracle made it worse, by widening the gap between the market price and the redemption price[1].
The team said it was not a rug pull but a result of poor token design[1]. Others pointed to the basics: the code was un-audited and the system had never been stress-tested, one fund manager told CNBC[3].
Red flags ignored
- Backed by itself. Part of the reserve was TITAN, the token whose price depended on the reserve holding.[3]
- Yields with ten digits. Annual yields in the billions of percent can only be paid in newly printed tokens.[3]
- Too fast. Locked value grew about forty-fold in under a month.[1]
- Celebrity attention at the top. Cuban's blog post came three days before the crash, and Bloomberg wrote that the attention may have helped drive the price surge.[4]
The cost
TITAN went to effectively zero, from $64.19 at its high[2][5]. About $1.2 billion had been locked in the protocol four days earlier[1], and Cointelegraph put investor losses at nearly $2 billion[2]. Nearly two weeks later, IRON itself was still below its peg[2].
Cuban said his loss was a small share of his crypto portfolio, "but it was enough that I wasn't happy about it."[4][5] He blamed himself: "I was too lazy to do the math to determine what the key metrics were."[4]
The inversion
A peg defended by printing more of your own token is a countdown. Ask what the backing is worth in the moment everyone wants out at once.
What survived
The questions. Cuban argued there should be regulation "to define what a stable coin is and what collateralization is acceptable," and that stablecoins that are not backed one-to-one should have to spell out their risks[4][5].
The remaining USDC collateral, which holders could redeem once redemptions resumed[1][2]. The team said a second version of IRON would launch later[2].
References
- ^ “Iron Finance's DeFi bank run: why Mark Cuban got rekt”. Forkast, June 22, 2021. The coins and chains, TVL from $30 million to $1.2 billion, the two waves on June 16 with times and prices, redemptions minting TITAN, the TWAP oracle, the post-mortem's bank-run and not-a-rug-pull wording, Cuban as a liquidity provider, IRON at $0.77.
- ^ “Iron Finance bank run stings investors: a lesson for all stablecoins”. Cointelegraph Magazine, June 28, 2021. TITAN at $10 on June 9 and $64.19 on June 16, IRON in the $0.70 range, the post-mortem and planned IRON v2, redemptions resumed, losses of nearly $2 billion.
- ^ “Why the titan crypto crash that burned Mark Cuban may not signal a similar bitcoin plunge”. CNBC (MacKenzie Sigalos), June 24, 2021. The 75 percent USDC / 25 percent TITAN reserve, the 4,151,343,175 percent yield screenshot, the redemption malfunction, "first large-scale crypto bank run," un-audited and not stress-tested.
- ^ “Mark Cuban DeFi: Iron Finance crashed 100%”. Bloomberg (Joe Weisenthal), June 17, 2021, archived copy. Iron Finance as a Frax fork, Cuban's blog post and DAI/TITAN pool, the possible role of his attention in the surge, his tweet and full email (small share of portfolio, too lazy to do the math, call for regulation).
- ^ “Mark Cuban calls for regulation after TITAN crash”. Decrypt, June 17, 2021. TITAN from $65 to $0.00000003 in hours, Cuban's "small" loss and his regulation quote.