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Iron Finance

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Iron Finance was a decentralized finance (defi) protocol based on Polygon blockchain.

History

Iron Finance was founded by anonymous developers as a fork of Frax project. Its early investors included Mark Cuban.

In June 2021, the value of the tokens plummeted to zero after crypto whales began liquidating their TITAN stakes at its peak value, causing the prices of both the IRON stablecoin and TITAN token to drop sharply. The situation worsened when the smart contract, the underlying code governing the stablecoin, temporarily malfunctioned which made impossible for holders to redeem their coins, compounding the crisis.

Tokens

IRON was an algorithmic stablecoin backed by 75 percent USDC and 25 percent TITAN. The Target Collateral Ratio (TCR) defined the ratio of USDC to $1 worth of IRON minted. The remaining value was provided by TITAN tokens at the prevailing price, requiring fewer tokens when TITAN's price was high. Users could redeem IRON for USDC and TITAN, with the Effective Collateral Ratio (ECR) indicating the ratio of USDC to $1 worth of IRON redeemed. These ratios could vary based on IRON's price relative to the $1 peg and the level of USDC in the protocol's reserves. Consequently, IRON was supported by the combined value of USDC and TITAN, with the required amounts depending on their market prices.

TITAN, a native token issued by Iron Finance without specific rights, had two primary functions: it was necessary for minting IRON and could be staked with a companion token in liquidity pools. These pools provided liquidity for traders engaging in token transactions.

The protocol's reliance on partial collateralization contributed to its failure. A rapid increase in TITAN's value triggered a large-scale sell-off by major holders, creating a "negative feedback loop" or "death spiral." This caused TITAN's value to collapse to nearly zero and IRON to lose its dollar peg. The incident resulted in approximately $2 billion in losses and has been referred to as the first major "bank run" in the DeFi space.

Liquidity pools

Iron Finance operated four pools across three token pairs: USDC-IRON (two pools), TITAN-IRON, and TITAN-MATIC. Liquidity providers earned TITAN as incentives.

Tokenomics

Iron Finance planned a total issuance of 1 billion TITAN tokens, allocating 700 million as rewards over 36 months and 300 million for protocol sponsors, to be vested linearly over 12 months.

See also

References

  1. ^ Saengchote, Kanis (16 July 2021). A DeFi Bank Run: Iron Finance, IRON Stablecoin, and the Fall of TITAN (Report). SSRN 3888089.
  2. ^ "Mark Cuban DeFi: Iron Finance Crashed 100%". Bloomberg. June 18, 2021.
  3. ^ Saengchote, Kanis; Samphantharak, Krislert (June 2024). "Digital money creation and algorithmic stablecoin run". Finance Research Letters. 64: 105435. doi:10.1016/j.frl.2024.105435.
  4. ^ Sigalos, MacKenzie (June 24, 2021). "Why the crash of crypto token 'titan' that burned Mark Cuban may not foretell a bitcoin plunge". CNBC.
  5. ^ Di Maggio, Marco (2024). Blockchain, Crypto and DeFi: Bridging Finance and Technology. pp. 198–199. ISBN 9781394275908.
  6. ^ Ross, Robert (2022). A Beginner's Guide to High-Risk, High-Reward Investing. Simon and Schuster. pp. 241–243. ISBN 9781507218235.
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