Billionaire DeFi investor and reality TV personality Mark Cuban just got rug pulled — what happens when founders cash out before abandoning a project — when the DeFi token Titanium went from being valued at $60 to $0 in a day.
Titanium or Titan, is/was part of a multi-chain partial-collateralized algorithmic stablecoin project called Iron Finance. Three days ago, Iron Finance tweeted, “A picture is worth a thousand words” with an image of a rocket on the moon and the number $2 billion.
“Even in the world of crypto, where massive drawdowns are commonplace, 100% washouts are pretty rare, especially in such short a time,” wrote Bloomberg digital news Executive Editor Joe Weisenthal.
“Anyone else see the similarities between crypto and the unregulated stock market in the late 1920’s? I’m sure it’s nothing, it’ll be fine” @stockmonk6 tweeted.
Stablecoins are a fast-growing corner of the crypto market that sold itself on being immune from volatility. They come with a fixed price, typically $1, and some are backed by real-money reserves such the U.S. dollar or the price of gold. Others, like the Titan algorithmic stablecoin, use a dual-currency structure and attempt to hold a peg by creating arbitrage opportunities between coins, Bloomberg reported.
Stablecoins attempt to offer price stability and are attractive because they offer the best of both worlds—the instant processing, security and privacy of crypto payments and the volatility-free stable valuations of fiat currencies. The U.S. government has been investigating stablecoins over concerns about risks to investors and even the financial system.
When the price of $TITAN fell to zero, Iron Finance called for all holders to withdraw liquidity from the pools after being hit by what it called a “bank run,” Decrypt reported.
Iron Finance is a DeFi protocol with two cryptocurrencies — IRON and Titan. IRON is supposed to act as a stablecoin whose value is pegged in an algorithmic way to TITAN and USDC, wrote CryptoPotato Editor-In-Chief George Georgiev.
“Users can either mint or redeem IRON tokens through a mechanism that, in certain circumstances, drives up the demand for TITAN. That’s exactly what happened recently. As the price for TITAN continued to surge, whales dumped their tokens to realize profits. This caused somewhat of a chain reaction of panic selling, driving the price of TITAN down, which in turn caused IRON to lose its peg.”
Users were able to redeem tokens at lower-than-market-value and arbitrage. However, this would require minting new TITAN every time, Georgiev said. “As soon as larger players started doing so, the market was flooded with freshly-minted TITAN, and as everyone was panic-selling, this crashed the price of TITAN to almost $0.”
IRON described what happened as a “bank run” — a legacy finance expression from the Great Depression where people withdrew their money fearing the bank would break.
Cuban is a limited partner in QuickSwap, a decentralized exchange. On June 13, he said that he was one of those liquidity providers on QuickSwap, tweeting, “Crypto Businesses make more sense than you think and valuing tokens is easier and makes more sense than you think.” Three days later, he responded to the suggestion that this was a rug pull, tweeting, “I got hit like everyone else. Crazy part is I got out, thought they were increasing their [total value locked] enough. Than Bam.”
Cuban helped popularize Iron Finance. His recommendation saw the price skyrocket to many orders of magnitudes. “He’s now believed to have lost $8M, though there has been no confirmation on his part,” Taha Zafar reported for Cryptoticker.
“Mark Cuban experiences his first rug pull!” Reditt user u/DetroitMotorShow posted. “Titan crashed from $60 to $2. If you see 50,000% APYs, you should to be doubting it’s legitimacy, not aping in. This project just launched few days ago and built up a huge TVL of over$2bn in a matter of just days and was being celebrated across defi universe, and got listed by a lot of DEX exchanges in a matter of days.”
The Iron Finance crash is the latest in a long line of algorithmic stablecoin projects that have crashed and burned, Bloomberg reported. “Nobody seems to have figured out how to nail it.” The repeated failure of these projects is a meme on crypto twitter.
Cuban emailed Bloomberg about his experience, saying he thinks regulation is needed that includes defining what a stablecoin is. Here’s his full email:
“I read about it. Decided to try it. Got out. Then got back in when the TVL start to rise back up As a percentage of my crypto portfolio it was small. But it was enough that I wasn’t happy about it.
But in a larger context it is no different than the risks I take [in] angel investing. In any new industry, there are risks I take on with the goal of not just trying to make money but also to learn. Even though I got rugged on this, it’s really on me for being lazy. The thing about de fi plays like this is that its all about revenue and math and I was too lazy to do the math to determine what the key metrics were.
The investment wasn’t so big that I felt the need to have to dot every I and cross every T. I took a flyer and lost. But if you are looking for a lesson learned , the real question is the regulatory one. There will be a lot of players trying to establish stable coins on every new l1 and L2. It can be a very lucrative fee and arb business for the winners.
There should be regulation to define what a stable coin is and what collateralization is acceptable. Should we require $1 in us currency for every dollar or define acceptable collateralization options, like us treasuries or?
To be able to call itself a stable coin? Where collateralization is not 1 to 1, should the math of the risks have to be clearly defined for all users and approved before release? Probably given stable coins most likely need to get to hundreds of millions or more in value in order to be useful, they should have to register.”
The crypto price-tracking website Coinmarketcap defines a rug pull as “a malicious maneuver in the cryptocurrency industry where crypto developers abandon a project and run away with investors’ funds. Rug pulls usually happen in the decentralized finance (DeFi) ecosystem, especially on decentralized exchanges (DEXs), where malicious individuals create a token and list it on a DEX, then pair it with a leading cryptocurrency like Ethereum.”
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