Iron Titanium token (TITAN), a decentralized finance (DeFi) protocol, has fallen to near zero. According to coinmarketcap, the token is now trading for $0.000007677, down from yesterday’s all-time high of $52. The fallout has brought the project to its knees.
What happened
TITAN belongs to Iron Finance. It is a DeFi protocol project that began bridging to Polygon’s chain sometime in May 2021 in a bid to tap into Polygon’s efficiency and low transaction fees. The project was trying to start a partially collateralized stablecoin known as “IRON”. The stablecoin consists of Circle and Coinbase’s stablecoin, USDC and TITAN.
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The stablecoin was pegged to $1. Since IRON receives its collateral backing from TITAN, users could mint new stablecoins through a mechanism on Iron Finance’s network by locking up 25% in TITAN and 75% in USDC.
Because of the tokenomics, when new IRON stablecoins are minted, the demand for TITAN increases, thus driving up its price. Conversely, when the price of TITAN falls dramatically, as was the case on Wednesday evening, the peg becomes unstable.
As whales (A term used to describe individuals with a lot of cryptocurrencies of a particular coin) began to offload their TITAN tokens, they flooded the market with excess tokens which brought about a massive supply with little demand. This brought about a situation where a large portion of users attempt to withdraw their money at the same time, believing that the protocol would cease to exist.
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As TITAN began to fall rapidly, so did the pegged value of IRON (it consists of 25% TITAN). As the dump by investors continued, it triggered the stablecoin’s mechanism that mints TITAN and removes liquidity in a bid to stabilize IRON to $1. This caused an arbitrage opportunity in the difference in the price of IRON and TITAN which is below $1. This in turn flooded the market with even more TITAN tokens adding additional sell pressure and destabilizing IRON’s price even further.
Before the tsunami, users were receiving an incredible 2% – 5% annual percentage rate per day. After the tsunami, TITAN was near zero and IRON was last seen trading way off peg, around $0.69. Coinmarketcap has classified IRON under its “Untracked Listing”.
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The project, however, has responded by offering redemptions in USDC but reminded users they will need to wait 12 hours for a “timelock” feature to pass before it can be executed. Iron Finance had over $2 billion in total value locked on Polygon’s network. That value has since dropped to around $356.5 million, according to the protocol’s dashboard.
Fred Schebesta, founder of Finder.com.au and Iron Finance investor stated, “There was no rug pull or exploits. What happened is just the worst thing that could possibly happen considering their tokenomics.”