A near-total collapse in the price of a share token of a decentralized finance (DeFi) protocol was “the world’s first large-scale crypto bank run,” the people behind Iron Finance said in a blog post providing a postmortem. The run brought the worth of the protocol down from $2 billion to near zero on Wednesday.
- A "negative feedback loop" was created when a series of large holders tried to redeem their IRON tokens and sell their iron titanium (TITAN), the token of the Iron Protocol, the post said. That, in turn, caused more TITAN holders to run for the virtual hills, leading to what the team labeled "a classic bank run."
- "What we just experienced is the worst thing that could happen to the protocol, a historical bank run in the modern high-tech crypto space," the post said.
- The run was enabled by the fact that Iron Finance is only partly collateralized. It had enough for normal day-to-day operations, but just like in the bank run depicted in the movie "It's a Wonderful Life," if everyone wants their money all at once, the bank can't pay up. Unfortunately for Iron Finance, there was no George Bailey around on Wednesday.
- "When people panic and run over to the bank to withdraw their money in a short period, the bank may and will collapse," the post said.
- The so-called run garnered even more attention than it would have because of billionaire investor Mark Cuban's use of Iron Protocol. In the wake of the crash, Cuban is now calling on regulators to determine what constitutes a "stablecoin."
- While declining to say how much he had lost, Cuban said that "it was enough that I wasn't happy about it."
- Redemptions in Iron Finance, which were disabled automatically due to the drop in TITAN's price, were set to resume at 17:00 UTC (1 p.m. ET on Thursday), the team said. However, at press time, the function wasn't working.