Iron Titanium token (TITAN) – the share token of a decentralized finance (DeFi) protocol that was once worth $2 billion – has fallen to near zero.
The token was recently changing hands for around $0.000000035, down from Wednesday’s high of $65. The fallout, which has been swift, has brought the project to its knees.
Some argue the interest from billionaire investor Mark Cuban has only exacerbated the situation as people discovered his DeFi wallet and alleged that he is the sole provider of TITAN/Dai on the Polygon blockchain.
TITAN belongs to Iron Finance, a project that began bridging to Polygon’s chain on May 18 in a bid to tap into Polygon’s efficiency and low transaction fees.
The project was attempting to boot a partially collateralized stablecoin known as IRON. The stablecoin, in turn, consists of Circle and Coinbase’s stablecoin, USDC, as well as TITAN, and was pegged to $1. Stablecoins are cryptocurrencies whose value is attached to financial assets such as commodities or government-issued currency in a bid to keep them stable.
In the case of IRON, which receives its collateral backing from TITAN, users may mint new stablecoins through a mechanism on Iron Finance’s network by locking up 25% in TITAN and 75% in USDC.
Due to how the “tokenomics” of this particular DeFi project functions, when new IRON stablecoins are minted, the demand for TITAN increases, driving up its price. Conversely, when the price of TITAN falls dramatically, as was the case on Wednesday evening, the peg becomes unstable.
“TITAN’s price went to $65 and then pulled back to $60. This caused whales [large investors] to start selling,” Fred Schebesta, founder of Finder.com.au and an Iron Finance investor, told CoinDesk via Telegram. “That then led to a big de-pegging of [IRON].”
As the big investors began to offload their TITAN tokens, they flooded the market with excess tokens, causing a bank run. A bank run refers to a situation when a large percentage of users attempt to withdraw their money at the same time believing the bank, or in this case, the protocol, will cease to exist.
In turn, as TITAN began to fall in dramatic fashion, so did the pegged value of IRON. As the selling by large holders further decreased the value of IRON, it triggered the stablecoin’s mechanism that mints TITAN and removes liquidity in a bid to stabilize IRON to $1.
That caused an arbitrage opportunity in the difference in price of IRON and TITAN, which in turn flooded the market with even more TITAN tokens, adding additional selling pressure and destabilizing IRON’s price even further.
“It was a crypto vortex of money,” Schebesta said.
In the beginning, users were receiving a return of an incredible 2%-5% per day. When the dust settled, TITAN was near zero and IRON was last seen trading way off peg, at around $0.69.
The project 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.
At one stage, Iron Finance had over $2 billion in total value locked on Polygon. That value has since dropped to around $356.5 million, according to the protocol’s own dashboard.
“There was no rug pull or exploits,” Schebesta said. “What happened is just the worst thing that could possibly happen considering their tokenomics.”