Evening
As crypto market continues to mourn the loss of its largest algorithmic stable coin UST, another algorithmic stable coin seems to be falling off the rails now. DEI, a stable coin from a collateral based defi application DEUS Finance built upon Fantom blockchain, today lost its dollar peg.
DEI went as low as $0.55 below peg today, before recovering to $0.67 at the time of writing. Like Terra's UST, DEI is also an algorithmic stable coin following the same mint and burn mechanism to maintain peg. But unlike UST, DEI is 100% collateralized.
Meanwhile the price of DEUS is also on a roller coaster ride, fluctuating heavily.
Like Terra, DEUS Finance offers two coins; DEUS serving as project's native governance token and DEI as a stable coin. DEI maintains its peg by using mint and burn mechanism. Users can mint 1$ DEI by depositing $1 worth of different crypto currencies like USDC, FTM, DAI, wBTC or even the combination of these USDC and DEUS token in a ratio of 80%.
When DEI is minted, the DEUS collateral is burned and when DEI is redeemed DUES tokens are minted along with the deposited collateral coin. e.g if using wBTC as collateral, user will get 80% worth wBTC and 20% worth newly minted DEUS back when redeeming DEI.
If price of DEI falls below $1, users are incentivized to buy it from open market at less than $1 per DAI and redeem those DAI at $1 per DAI to get USDC and DUES collateral, pocketing the profit. And if DEI gets above the peg, users can mint new DEI at the rate of $1 worth collateral and sell that DAI in market to again make some profit. This minting and burning ensure DEI peg remains maintained.
Two factors may have contributed to DEI deviation from peg, first is the DUES finance loosing $30 million in two flash loan attacks a couple of months ago. Second is the significant loss in value of DEUS as bear market lingers on.
With DEI getting way below the peg, many users rushed toward buying DEI from market and redeeming that DEI for USDC & DEUS collateral. But to avoid the risk of collapsing DEUS finance have paused DEI redemptions and DEI peg will be restored using debt tokens.