The incredible fall of the Iron Finance Titan…Historic Bank Run.

With a name like that, you could expect a fall, right? You may have heard about it because many media outlets relayed the information so everyone was taken by surprise.

So, the Iron Titanium token (TITAN) was launched by Iron Finance on the Polygon blockchain and experienced a huge fall into the abyss. Judge for yourself the curve everyone fears.

We are still talking about a token which in its momentum managed to have 2 billion dollars in market capitalization before reaching the void.

If we have talked about it a lot it is also because the famoso Mark Cuban had made the apology on the networks just a few hours before. In fact, there are a lot of rumors but some say he only made the situation worse. People reportedly discovered that he was the main liquidity provider to the TITAN/DAI pair on the Polygon blockchain. In fact, he would have said good things about it in order to enrich himself even more than he is…

It's a rugpull phenomenon or more precisely Bank Ran as they say in the industry.

Context

Remember that TITAN belongs to the Iron Finace project which began working on Polygon on May 18, 2021. The goal was to take advantage of low transaction fees (compared to Ethereum, always).

The project consisted of launching a partially collateralized stablecoin: IRON. This consisted of the stablecoin USDC and TITAN indexed at $1 therefore. Thus, the IRON token maintains its guarantee with the TITAN token. Users then mine stabelcoins via a mechanism specific to the IRON Finance network. This is done by locking 25% in TITAN and 25% in USDC.

The first thing we can say is that the project was well thought out and mathematically sound. It’s undeniable, tokenomics is very interesting. And, every time new IRON tokens are minted, then necessarily the demand for TITAN increases inexorably. This is what makes and causes its price to rise so quickly, for example.

Only, on the rise, everything is fine, of course. When the price of TITAN falls, then the mechanism becomes unstable and irrelevant.

The start of the banking panic (BANK RUN).

In fact, TITAN was at $65 and once the decline took it to $60, the biggest investors (the whales) started to sell. The latter mass unloaded their TITAN token by flooding the market with additional tokens. This is the beginning of the banking panic.

Bank run is the phenomenon where a large percentage of holders start wanting to withdraw all their money, believing that the protocol will close. People withdraw in panic, which creates an extreme environment where selling seems to be the only way. In the crypto universe, we rather use the expression " Back Pull« 

You should know that this is just the beginning of the problems. In fact, when the TITAN started to fall, you should know that the IRON followed the slope. However, to make IRON stable at $1, he lowered the price of TITAN again.

The arbitrage opportunities in such a context were very tempting given the difference between IRON and TITAN. This created an even more disastrous situation for IRON.

To calm users, IRON employees offered redemptions in USDC but you had to wait 12 hours for the lock period to end.

What do you think of this matter?

On the one hand, it's unfortunate, many people lost all their capital. They thought they were safe and winning until everything disappeared, literally. Likewise, the fact that the protocol uses stablecoins gave it a kind of additional guarantee, with a kind of risk coverage.

Finally, we realize something that we had noticed elsewhere but not as strongly. Stablecoins in cryptocurrencies also carry risks.

This has certainly been one of the biggest Run Banks in the crypto universe.

What actually happened?

Also, the mechanism was well thought out but many people criticized the software for not having been designed to overcome limits. This has not been confirmed by Iron Finance and we do not know if there is actually a bug in the design of the algorithm itself.

Now what do we do?

Well, reading their article "Post-Mortem", in which he explains to us in broad terms the situation of TITAN, the team tells us that they will continue to develop new products. They will also call on an independent party to better understand in detail what really happened (code problem? Panic linked to who and what?).

In short, still many questions for what has been described as “the worst thing that can happen to a token”…

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