The DeFi protocol IRON Finance urged users to withdraw funds from pools after the IRON Titanium Token (TITAN) devalued amid “bank run”.
Dear community, please withdraw liquidity from all pools.
We will share a post-mortem as soon as we have a better understanding of this bank run.
USDC collateral is available for redemption as normal:https://t.co/tOacyNUVeL
Iron Finance Team pic.twitter.com/I9BAZReLHk
— IRON Finance (@IronFinance) June 17, 2021
The term «банковская паника» (“bank run” — kalka from English) in the context of decentralised finance means a situation where liquidity providers worried about market stability rush to withdraw more funds than the platform can sustain. This triggers further panic and loss of trust in the system.
The IRON Finance protocol runs on Polygon and Binance Smart Chain (BSC). The project has a partially backed stablecoin IRON, softly pegged to the US dollar.
IRON’s stability is maintained by holding sufficient collateral in smart contracts with a timelock. The collateral comprises two assets: on Polygon, USD Coin (USDC) and TITAN, and on BSC — Binance USD (BUSD) and STEEL.
Under the IRON issuance mechanism, to mint the stablecoin a user must lock in the smart contract 25% collateral in TITAN and 75% in USDC. Thus, when new IRON are minted, demand for TITAN grows along with its price. When TITAN’s price falls sharply, IRON becomes unstable.
That is exactly what happened in the night of June 16–17. According to CoinGecko, TITAN prices collapsed from $64.19 to almost $0. The price of the stablecoin IRON also fell 31% — to $0.689. The STEEL token fell 62% — to $0.665.
«The price of TITAN reached $65, and then returned to $60. This caused whales to start selling. As a result, the price of the stablecoin fell sharply», — CoinDesk founder Fred Shebesta tells Finder.com.au and an IRON Finance investor.
When large holders began selling assets, they flooded the market with an excess of tokens. Since the protocol minted TITAN and withdrew liquidity in an attempt to stabilise IRON, there was an arbitrage opportunity. This, in turn, pushed more tokens onto the market and had the opposite effect.
The IRON Finance team proposed that users redeem tokens in USDC, but this would require waiting 12 hours for the timelock to expire. Detailed information about the causes of the incident would be disclosed later.
Since the price of titan has fallen to 0, the contract does not allow for redemptions.
We will need to wait for 12 hours for the timelock to pass before USDC redemptions are possible again.
— IRON Finance (@IronFinance) June 17, 2021
Reddit users suggested that TITAN’s collapse was the result of a DoS attack on the Polygon network. They noted that, at night, nearly every blockchain block generated was almost 100% filled.
The value of the transactions included in those blocks was, in most cases, zero, and some were marked as “sent to self.”
One of the investors affected by the incident was Mark Cuban. According to Decrypt, he was a liquidity provider on the decentralised exchange QuickSwap.
The billionaire wrote that he was hit, like everyone else. He suggested that the protocol had increased the amount of funds blocked in his favour. When asked by the publication about what happened Cuban answered: “Live and learn.”
I got hit like everyone else. Crazy part is I got out, thought they were increasing their TVL enough. Than Bam.
As reported in June, Cuban said that the US could miss «the next engine of growth the country needs» if regulators fail to curb crypto regulation and the DeFi sector.