Another stable coin lost its dollar attachment after the controversial crash of UST from Terra.
Amid what appears to be a general volatility trend among stable coins, another US dollar-pegged asset showed instability on Monday.
DEI, an algorithmic stable coin native to the decentralized finance (DeFi) protocol DEUS Finance, lost its attachment to the dollar on Monday, falling to lows of 50 cents. The asset, which requires holding a stable price of $1, started crumbling down on Sunday and has been unstable.
The development arrives after the fall of Terra’s algorithmic stable coin UST, a digital asset project that crumbled down last week after its dollar-pegged asset lost parity. The events, which saw LUNA, Terra’s native token, fall from $80 to zero in just hours, have negatively harmed other market corners.
Bitcoin faced some difficulties recovering $30,000 as major digital currencies presented significant losses since the sad Terra incident. Meanwhile, other stable coins, including Tether (USDT) and Tron’s new USDD, have struggled to maintain their attachment to the dollar.
How Does the DEI Work?
Like UST, DEI is an algorithmic stable coin that operates by minting and burning DEUS, its sister item, to feed the parity with the dollar. However, unlike the Terra stablecoin, DEI is an asset with collateral features seen in other coins besides DEUS.
As Decrypt highlighted, users can always mint 1 DEI by depositing USD 1 in collateral. Collateral can be Circle’s USDC, FTM, MakerDAO’s DAI stable coin, WBTC (the wrapped version of Bitcoin), or DEUS and USDC. The collateral ratio between USDC and native DEUS tokens is 80%.
When DEI gets minted, the underlying collateral gets burned, while when the stable coin faces an exchange for collateral, DEUS tokens also get created. For example, if DEI got created employing USDC as collateral, the user would gain 80% USDC and 20% DEUS upon redemption.
If the DEI price goes by more than $1, users can mint 1 DEI employing $1 collateral and put it for sale to convert the difference into profit. Conversely, if DEI drops below $1, users can purchase a DEI for less than $1 on the open market and redeem them for $1 collateral in USDC and DEUS.
DEUS Token also Falls down
The DEUS token has also fallen in price along with the stable coin. According to data from CoinMarketCap, the project’s native currency is down just over 10% in the last 24 hours and is trading at $262 at press time. Before the fall, the price of DEUS had rebounded, touching the 321 dollars the unit.
The decline of its sister token could impact the DEI parity. In the meantime, to reduce the risks of collapse, the DEUS Finance team has stopped the swap process from helping stabilize the currency. They also announced that the money would be fully collateralized and assured that the parity would get restored within 24 hours.
Beyond the most recent situations that took effect in the market, the DEUS Finance ecosystem has experienced other difficulties that could now be impacting its stable coin. Its DeFi protocol went through two hacking attacks that drained more than $30 million worth of digital assets in the last two months.
By: Jenson Nuñez
