The crypto market, already reeling from the unprecedented collapse of LUNA and the UST stablecoin, received another jolt when Deus Finance’s DEI stablecoin became the latest stablecoin to lose its 1-1 peg to the US Dollar. Deus Finance’s DEI stablecoin is also an algorithmic stablecoin.
Several stablecoins have lost their dollar peg over the course of the week as the market struggles to recover from the UST and LUNA collapse.
DEI Loses Dollar Peg
Compared to other stablecoins in the market, such as USDT, USDC, or even UST, DEI is a much smaller stablecoin, with a market cap of around $39 million. Deus Finance uses the DEUS and DEI token for its DeFi protocol, with the value of the DEI pegged to $1. This means that minting $1 DEI would require $1 as collateral.
DEI’s de-pegging began on the 15th, when the algorithmic stablecoin fell to $0.84, according to data from CoinMarketCap. The DEI continued to drop, losing nearly half its value and dropping to $0.52 before recovering. It rose to $0.72 but, with markets still choppy, continued to experience volatility and began dropping again. The DEI is currently trading at $0.59 as the team at Deus Finance struggles to restore the peg.
Deus Finance Struggles To Restore Peg
The team at Deus Finance tweeted that they were working to restore the DEI’s peg, implementing mitigation measures. However, they did not share any official information about the drop in value or why it occurred.
“Our team is working around the clock to restore the DEI peg. Mitigation measures were implemented immediately, and solutions are being developed for long-term stability.”
The likely cause behind the de-pegging event could be that traders, spooked by the UST crash, likely exchanged DEI tokens for USDC. The low liquidity on decentralized exchanges caused the price to fluctuate. Once the price dropped, more traders began selling their DEI to protect against any risk, further contributing to the price drop. On top of this, Deus developers had also paused the redemption mechanism for DEI, leading to a further decline.
Developers on Deus Telegram channel explained that the low liquidity was due to traders exiting stablecoin pools following the UST collapse and a lower than usual backing for DEI thanks to a $13.4 million exploit that had occurred in April.
How The DEI Stablecoin Functions
The DEI stablecoin uses a different mechanism than the UST, which was backed by the LUNA token. DEI is backed by 10% of DEUS tokens and 90% by other assets and stablecoins. The team closely monitors the collateral ratio. DEI’s primary objective is to provide decentralized and scalable liquidity across all blockchains, allowing users to send a stablecoin to any chain and claim it without any slippage.
Algorithmic Stablecoins On Slippery Ground
Other stablecoins such as Tether, USDC, and others also struggled as they lost their pegs thanks to the mayhem in the market. Most major stablecoins swung between $0.95 and $1.02 over the week, according to data from CoinMarketCap. However, this is not the first time that the stablecoins in question have experienced volatility. However, recent events have contributed to the most volatile week in the asset class’ history.
Hagen Rooke, Financial Regulation Partner at law firm Reed, based in Singapore, commented,
“Stablecoins are the closest that we’ll get in the crypto space to a systemically important asset, and any impact on the value of one or several stablecoins is liable to impact the system as a whole,”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.