fUSD de-peg and its implications for the Fantom ecosystem

When UST de-peg, a series of stablecoins were negatively affected, including fUSD – stablecoin on Fantom. However, the de-peg fUSD brings a lot of consequences for projects on Fantom. In today’s article, let’s learn about this with CoinCu.

fUSD is a stablecoin minted by collateralizing FTM. Thus, unlike the algorithmic stablecoins that have been depeg recently, Fantom USD is an “over-collateralized stablecoin” backed by collateral with a rate of as much as 500%. For ease of visualization, FTM and fUSD can be compared with ETH and DAI in terms of mechanism.

The 500% Collateral Ratio figure means that to generate 100 Fantom USD, users will have to mortgage a total of 500 USD worth of FTM.

If you follow the price chart of fUSD, it is easy to see that this stablecoin almost never returns to the 1 USD zone. Besides, with the “over-collateralized” escrow mechanism, the problem of Fantom USD is not the same as that of Terra USD. So where is the reason for de-peg?

The main answer is liquidity when the maximum total supply of Fantom USD is only nearly $44 million. Also, because of the poor liquidity, the fUSD easily fluctuates after each swap order.

The fact that fUSD was de-peg wouldn’t have been so exaggerated had Scream not made a silly mistake in product design. Accepting Fantom USD as collateral to borrow on the Scream lending platform creates an opportunity for exploiters to profit, leaving Scream with significant bad debt.

Right after that, Fantom Foundation had to quickly deploy a solution to patch the problem and implement bad debt liquidation transactions.

In addition, the Fantom Foundation has announced a new FIP proposal, which aims to develop a V2 version of stablecoin. In particular, the author of this proposal is the “DeFi godfather” Andre Cronje.

Suggested factors to change include:

• Liquidation of loans with a Collateral Ratio below 300%

• Create a trading pair fUSD/USDC to get enough liquidity to liquidate outstanding bad debts.

• Finally, redeploy new limit parameters to ensure future safety.

Andre’s return made the Twitter community a bit excited, mixed with mixed opinions after he had little interest in releasing the Solidly project in March 2022.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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