Iron Finance: Was This The ‘First Large-Scale Bank Run’ In Crypto?

“What we just experienced is the worst thing that could happen to the protocol, a historical bank run in the modern high-tech crypto space,”

This is what Iron Finance stated in its blog post.

The IRON token is partially collateralized and soft pegged to the U.S. Dollar. The protocol aims to maintain IRON token’s price stability. So, the protocol stores sufficient collateral in the time-locked smart contracts.

The IRON token is available on Polygon and BSC. Because it is available on two networks, the collateral consists of two tokens. On the Polygon network, USDC, and TITAN token and on the BinanceSmartChain BUSD and STEEL token. 

The USDC or BUSD token is deposited into the protocol whenever users mint IRON tokens. At the same time, the TITAN or STEEL token, which is used for minting, is burned. 

Users redeem IRON tokens, and then the protocol pays back USDC or BUSD tokens. Parallelly, the protocol mints the required amount of TITAN or STEEL tokens.

Why did the TITAN token crashed?

Everything began on the 16th of June around 10 am UTC.

Some whales began to remove liquidity from IRON/USDC. They sold TITAN to IRON and then IRON to USDC directly to liquidity pools instead of redeeming IRON. This caused the IRON price off-peg.

Because of this, TITAN dropped from 65$ to 30$ within 2 hours. The price recovered shortly afterward and went up to $52 again. 

However, at around 3 pm UTC, a few big holders started selling again.

Many users panicked and started to redeem IRON and sell their TITAN. Because of how the TWAP oracles, TITAN spot price drops even further compared to the TWAP redemption price. This caused a negative feedback loop, on the other hand, because more TITAN was created.

The result: the TITAN price fell like a rock.

Iron Finance stated that this was an irrational and panicked event. Moreover, the protocol said that we have just experienced a historical bank run in the modern high-tech crypto space.

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