TITAN and IRON melt in crypto version of a bank run
16:38, 17 June 2021
“We never thought it would happen, but it just did. We just experienced the world’s first large-scale crypto bank run,” said the team behind Iron.Finance in a “post-mortem” message to its investors. Iron Finance is one of many projects aiming to revolutionise the decentralised finance (DeFi) ecosystem.
The team’s Iron Titanium token (TITAN) plummeted from an all-time high of over $64 on Wednesday to zero in less than 24 hours after a massive selloff of the cryptocurrency. Billionaire investor Mark Cuban, a big name in the crypto space, was among those hit by the crash, according to a Newsweek report.
Launched in early June, TITAN is a share token that the Iron.Finance team was trying to use to finance the development of IRON, a partially collateralised stablecoin on the Polygon blockchain and BinanceSmartChain. IRON is backed by both Coinbase’s stablecoin USDC and TITAN.
At one point, the value locked into the IRON stablecoin reached $2.3bn, but it recently dropped back to $238m, according to the latest data on the project's page.
“Bear-proof asset”
Within two weeks, the price of TITAN went up from just $1.34 to $64, as the IRON stablecoin grew, fuelling demand for TITAN tokens. Cuban’s involvement with TITAN may also have contributed to its rapid rise after he mentioned the token in a blog post.
Just before the crash, Iron.Finance boasted about the token’s gains, calling it a “bear-proof asset”.
In the same blog post, Iron.Finance suggested that TITAN was able to provide higher annual percentage yields (APY) than other crypto projects.
A crypto bank run
The crash came after a few big holders started selling the TITAN token and triggered algorithms set in place to stabilise the price of the IRON stablecoin.
As the price of TITAN dropped, more tokens were automatically created to keep the price of the IRON coin stable, leading to a vicious circle in which the new supply further depreciated the token’s value.
“What we just experienced is the worst thing that could happen to the protocol, a historical bank run in the modern high-tech crypto space,” Iron.Finance said in its post-mortem message to investors.
A partially collateralised stablecoin is similar to today’s fractional reserve banking, Iron.Finance explained moments after the crash: “When people panic and run over to the bank to withdraw their money in a short period, the bank may and will collapse.”
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