As the recent collapse of Terra’s UST stablecoin wasn’t shocking enough, a new development has again called into question the stability of the entire stablecoin segment, which has until now been considered one of the most bulletproof aspects of the crypto space.
Deus Finance is a decentralized finance protocol that enables the creation of synthetic assets. It does this by providing a platform for users to collateralize their assets and then trade them in a decentralized manner.
The key feature of Deus Finance ($DEUS) is its algorithmic stablecoin, DEI, which is pegged to the US Dollar. Just like UST, DEI lost its peg with the greenback and fell to as low as $0.527 on May 16, according to data from Coinmarketcap. DEI’s de-pegging began on the 15th, when it fell to $0.84.
Unlike the UST crash though, the DEI collapsed because of multiple hacks that left the protocol unable to provide enough USDC to back it. The hacks were mainly flash loan attacks that coupled with the value of Deus Finance ecosystem’s native token, DEUS, dropping, caused the DEI to lose its peg.
The stable – which was backed by DEUS, up to 10%, and 90% by other assets and stablecoins – was able to recover from the first hack, but the $3 million hack back in March was too much and it crashed.
It should be noted that the Deus Finance is not the only protocol that has been hit by flash loan attacks, but it is the only one that has not been able to recover. This is because the value of DEUS has continued to drop – down 69% since April 20 – making it harder for the DEI stablecoin to get back on track.
Following the depegging, the Deus Finance team took to Twitter to assure the network’s users that it was working on restoring the stable’s dollar peg. However, judging by DEI’s current price, $0.579 as of writing, it seems that the measures being implemented, which include a treasury bond program that will remove 35 million DEI from circulation, have not been effective so far.
DIP-7: $DEUS Treasury Bonds
We are proposing a treasury bond program aimed at securing peg stability 💪
These treasury bonds allow users to deposit collateral and earn a fixed interest based on the maturity date.
Read more about it here: https://t.co/UBhE3XAY7K$DEI
— DEUS Finance DAO (@DeusDao) May 15, 2022
It goes without saying that the loss of UST and DEI’s peg are a massive blow to the credibility of stablecoins, which are often touted as being immune to volatility. However, it seems that the stability of these coins that are designed to provide a stable and reliable currency for users to trade with, is only as good as the trust that investors have in them.
Price Action:
DEUS was last changing hands at $221.30, up 2.90% in the last 24 hours.
Disclaimer: This page contains affiliate links. If you choose to make a purchase after clicking a link, we may receive a commission at no additional cost to you. Thank you for your support!
Leave a Reply