Fantom Stablecoin DEI Becomes Latest to Lose Dollar Peg

DEI lost as much as 46 cents in European hours this morning. It follows a trend of several algorithmic stablecoins losing their pegs.

AccessTimeIconMay 16, 2022 at 12:18 p.m. UTC
Updated May 16, 2022 at 1:21 p.m. UTC

Shaurya is an analyst/editor for CoinDesk's markets team in Asia.

Deus Finance's stablecoin dei (DEI) lost its peg with U.S. dollar and fell to as low as 54 cents in European hours on Monday, data shows. The drop came amid several algorithmic stablecoins losing their peg last week.

Algorithmic stablecoins are supposed to be automatically pegged to the price of another currency. These are unlike centralized alternatives like tether (USDT) or USD coin (USDC), which are backed by actual dollars or equivalent assets stored in a bank.

DEI, valued at over $62 million by market capitalization, operates within Deus, a Fantom-based decentralized finance (DeFi) project. It comprises 10% DEUS tokens and 90% in other stablecoins.

The collateral ratio of DEI is constantly monitored and adjusted via arbitrage bots, which continually trade $1 worth of the underlying tokens for 1 DEI, or vice versa, to ensure a peg.

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DEI lost as much as 46 cents on Monday. (CoinGecko)

DEI – which traded 3 cents below its peg on Sunday – lost 20 cents on Sunday night as traders likely exchanged DEI tokens for USDC amid a small amount of liquidity on decentralized exchanges, which caused price fluctuations. Lower prices led to more traders selling DEI for other tokens, presumably to protect against risks, which further contributed to a price drop.

Separately, Deus developers had earlier paused a redemption mechanism for DEI – which allows investors to redeem DEI for other tokens – that may have contributed to the decline.

As such, developers on Deus’ Telegram channel explained the lower liquidity was partly due to traders exiting stablecoin pools after UST’s collapse last week and a lower-than-usual backing for DEI tokens after a $13.4 million exploit on the Deus protocol in late April.

Meanwhile, DEI has regained the 72 cents level at writing time, with Deus developers stating a repegging plan using debt tokens was in place that would prevent a collapse of the peg in the future.

The slump follows Terra ecosystem project UST costing its investors billions of dollars as it lost its peg and fell to as low as 22 cents. Associated token luna (LUNA) dropped to pennies from trading over $100 earlier this month, losing as much as 99.7% of its value in under a week.

Panic around UST last week led to a similar sell-off in other stablecoins, such as Waves’ stablecoin USDN which lost 15%.

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Shaurya is an analyst/editor for CoinDesk's markets team in Asia.

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Shaurya is an analyst/editor for CoinDesk's markets team in Asia.

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