Shark Tank star Mark Cuban recently aired his thoughts on Ethereum’s upcoming “Merge” upgrade. He pointed out how Ethereum’s utility as a smart contract platform and as a deflationary asset are at odds. In an interview with Altcoin Daily on Sunday, Cuban explained that there is an inverse relationship between deflation and utilization of Ethereum. “If utilization goes up, and the value of a token goes up, then the cost to do something goes up,” he explained. “So you have…
DEUS Finance’s algorithmic stablecoin DEI appears to be going the same route as the ravaged Terra USD (UST). DEI is the third stablecoin to depeg from the $1 mark in the past 14 days.
DEI Drops to All-Time Low
Price charts from CoinGecko show that the token failed to maintain its dollar peg starting late Sunday. Earlier today, DEI plummeted to an all-time low of 52 cents. The stablecoin has undergone a slight recovery and is hovering at $0.65 at writing.
Soon after the token’s price recorded its lowest value, its market capitalization expectedly halved, recording just less than $4 billion. As these events unfolded, the DEUS token also declined in price.
As this comes shortly after the UST collapse, the pertinent tokens have fallen under scrutiny. While DEI and UST are similar assets, they hold a definite difference as the former is collateralized. With a 1 USD collateral deposit, users can mint 1 DEI.
This deposit can be the equivalent amount of tokens such as USDC, FTM, DAI, the network’s native DEUS etcetera. Additionally, DEI maintains its dollar peg with a mint-and-burn mechanism, not unlike Terra USD. Also like LUNA did, DEUS functions as collateral for new DEI tokens to enter circulation; the DEUS tokens are burned unless other tokens fill this role.
Meanwhile, as users redeem DEI tokens, that is, exchange them for collateral, new DEUS tokens enter circulation. Regardless of what the collateral asset is, during redemption, about a 20% portion is sent in DEUS.
One stablecoin to suffer a similar fate in the past few days is USDX. The Kava protocol stablecoin fell below 50 cents last week Wednesday. Although its team assured the coin would repeg soon as it is not an algorithmic coin like UST, or, this time, DEI.
DEI’s Collateral Imbalance
Indeed, users can profit from fluctuations in DEI’s dollar peg. If the token exceeds 1 USD, they can mint single tokens using collateral equal to $1. If it falls beneath its peg, users can purchase tokens on the market for under a dollar and redeem them for a 1 USD collateral equivalent.
As a result, the recent price activity around the DEUS token and the stablecoin has resulted in an imbalance. The collateral ratio fell to 43%, something arbitrageurs have noted. Consequently, multiple users have cheaply purchased DEI externally to redeem the tokens at a substantial profit.
However, redemptions are nearly impossible, forcing the DEUS team to close redemptions until DEI returns to its peg. They have announced via their telegram channel that their decision to pause redemptions will occur within the next 24 hours.
The team has also shared plans to collateralize their stablecoin fully. Since March, the DEUS protocol has fallen victim to attacks that cost it over $30 million, leading its developers shut down their DEI lending contract.