The field of decentralized finance is one where there’s a non-zero chance of protocol failure. In other words – scams, exploits, rug pulls, and whatnot are something to be constantly vigilant about.
Iron Finance becomes the latest protocol to go through a massive exploit, which saw the price of its tokens plummet in what they describe as a ‘bank run.’
What Happened With Iron Finance?
Iron Finance is a DeFi protocol with two cryptocurrencies under its belt – IRON and Titan. IRON is supposed to act as a stablecoin, the value of which is pegged in an algorithmic way to TITAN and USDC.
In essence, 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.
This is exactly where the mechanism kicked in – users were able to redeem tokens at a lower than market value and arbitrage. However, this would require minting new TITAN every time. 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.
The team described this as a ‘bank run’ – a situation where users would run to their bank (in legacy finance) to withdraw their money under fears that the bank would quit working.
Meanwhile, the protocol won’t allow further redemptions due to the price crashing to $0.
Since the price of titan has fallen to 0, the contract does not allow for redemptions.
We will need to wait for 12 hours for the timelock to pass before USDC redemptions are possible again.
— IRON Finance (@IronFinance) June 17, 2021
Mark Cuban Caught in the Crossfire
It appears that the prominent investor and billionaire owner of the Dallas Mavericks, Mark Cuban, was also caught in the crossfire.
In a blog post he published on his website earlier, he had revealed that he had provided liquidity to the pool with a total of $75,000.
Unfortunately, this isn’t the first time Iron Finance goes through some sort of an exploit. Just last month, the protocol lost $170,000 from its liquidity pools following erroneous actions on behalf of their team.