DEI, a hybrid algorithmic stablecoin of decentralized finance (DeFi) protocol DEUS Finance, has failed to restore its intended peg, currently trading under one dollar for the third day.
The stablecoin first lost its dollar peg on Sunday after a wave of uncertainty incited by the crash of Terra‘s decentralized stablecoin UST led to traders exchanging their DEI tokens for USD coin (USDC) amid a small amount of liquidity on decentralized exchanges.
DEI plunged to as low as USD 0.525239 on Monday, but has since managed to slightly trim losses. At 8:15 UTC on Wednesday morning, the coin is trading at USD 0.606, down by around 40% compared to its intended peg of USD 1.
While DEI resembles Terra’s UST in many ways, the stablecoin is fundamentally different as it is collateralized.
Deus Finance backs the stablecoin with a basket of tokens, including its native governance token DEUS and other stablecoins. DEUS tokens comprise 10% of the reserve, while other stablecoins account for the remaining 90%.
One can mint DEI 1 by depositing USD 1 worth of collateral. The collateral can be USDC, Fantom‘s native token FTM, MakerDAO’s stablecoin DAI, wrapped bitcoin (WBTC), or a combination of DEUS and USDC. The collateral ratio between the USDC and native token DEUS is 80%.
Similar to Terra, DEUS Finance tries to maintain its targetted dollar peg using a mint-and-burn mechanism between DEUS and DEI.
Two factors seem to have contributed to the project facing liquidity issues.
Firstly, Deus Finance has fallen victim to two flash loan attacks recently, losing more than USD 13m. Moreover, the project’s native token DEUS has fallen sharply recently. The coin is down by more than 60% over the past week, currently trading at USD 221.5, according to CoinGecko.
These two factors have resulted in the decline of DEI’s collateral value, thus bringing down the collateral ratio to 43%, according to data from DEUS Finance.
Meanwhile, the project announced on Sunday that they aim to restore the peg using a “treasury bond program” that would incentivize users to deposit collateral and, in turn, earn a fixed interest.
“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 project said on Monday. “Further updates to follow.”
However, the team has not provided updates yet, while the stablecoin is still trading far below its dollar peg.
Cryptonews.com has reached out to Deus Finance for comment.