Today saw the meltdown of Iron Finance, issuer of a supposed “stablecoin” called IRON that is now worth a lot less than the dollar it’s supposed to be pegged to. That’s obviously bad, since the entire point of a stablecoin is to be stable.
Stablecoins are important. They’re widely used by crypto speculators and day-traders as supposedly safe places to park their money between trades, without the hassle and expense of converting to dollars. That demand has made the category competitive, and Iron’s collapse is a big black eye, not just for its creators, but for other tokens that take a similar approach – what are broadly known as “algorithmic” stablecoins.
David Z. Morris is CoinDesk’s chief insights columnist.
Related: สมัครjoker
Algorithmic stablecoins are one of at least three varieties. Fiat-backed stablecoins such as Circle’s USDC are fully backed up by traditional currency. A second category is crypto-backed stablecoins, such as MakerDAO’s DAI. Dai is overcollateralized to increase stability in the event of a crypto crash (which creates some problems of its own).
(Tether, somehow the most widely-used stablecoin, is in a messy category by itself.)
Finally, algorithmic stablecoins use less than one-to-one backing and a complex web of automated transactions and issuances to maintain a price peg. The details of these systems are spectacularly arcane.
Iron Finance’s stablecoin (IRON) was 75% backed by USDC, which is fully backed by dollars. The other 25% of backing was provided by TITAN, a “share token” or “balancer token” also created by Iron Finance itself. The Titan token was burned or printed as needed to maintain Iron’s one-dollar peg. (The Daily Gwei has a more detailed breakdown of the IRON system.)