Broken Pegs

In what has been a catastrophic week for stablecoins, two more stablecoins have lost their peg.

• The stablecoin fUSD fell as low as 0.69 with DEI falling to 0.52. The de-pegging event led to a lending protocol on the Fantom network known as SCREAM to incur $35 million in bad debt.
• Whales noticed the protocol was still valuing the depegged fUSD and DEI at $1, so they deposited large amounts of both.
• Then they withdrew stablecoins that were still in peg, such as USDT, FRAX, DAI, MIM, & USDC, draining the pools and leaving other depositors unable to make withdrawals.
• The defi lender has already lost 50% of its TVL.
• The problem was brought to light because of the de-pegging event but the protocol had hardcoded the prices of the stablecoins to $1. They also set the fUSD deposit limit to infinity.
• The SCREAM team announced a solution that involves them hardcoding the price of fUSD to 0.81, a move that will lead to liquidations of borrowers with otherwise healthy loan-to-value ratios.
• It also leaves many asking why the price is being hardcoded again instead of using oracles. According to the announcement, The Fantom Foundation will be releasing a liquidation mechanism that is currently under audit which will restore the fUSD peg to $1. The primary lender of DEI has agreed to repay the borrowed debts and the Deus Finance DAO has proposed treasury bond sales to restore the peg of DEI.

The SCREAM protocol is not available for US residents, but these de-pegging events and bank runs will undoubtedly fuel the fire that is already ablaze in the minds of US regulators.