The latest Coinmarketcap data shows that DEUS finance’s stablecoin, the DEI, has lost its dollar peg. After losing its dollar peg and dipping to a new low of $0.55 during the Monday morning session, the price of the algorithmic stablecoin has made some slight gains and currently trades at $0.66 following.
While DEUS finance’s stablecoin and Terra’s UST are similar in some respects, DEI is collateralized while UST is not. Collateralized means that users can deposit $1 worth of USDC, FTM, DAI or wBTC to mint 1 DEI. Users can also purchase $1 worth of USDC using DEUS (DEUS finance’s native token). However, the USDC and DEUS are collateralized at 1:0.8, respectively.
The Stability Of DEI’s Dollar Peg Is Similar To That Of Terra’s UST
The stability of DEI’s dollar peg is identical to that of Terra’s UST as they both utilize a mint-burn mechanism. There is a mint-burn mechanism between DEUS finance’s native token (DEUS) and the stablecoin (DEI). The DEUS collateral is burned while minting the stablecoin, DEI.
However, the dues collateral burn process can be halted when any collateral mentioned above is used. DEUS tokens can be minted simultaneously with the underlying collateral while redeeming the DEI for the underlying collateral.
Suppose you want to mint DEI with USDC as the collateral. You will receive 80% in USDC and the remaining in DEUS when redeeming your underlying. The redemption process means swapping the stablecoin for its collateral.
For instance, if DEI’s price exceeds $1, users can use $1 worth of the collateral to mint 1 DEI. Then, they can sell to make profits from the difference. Also, if DEI dips less than $1, users can purchase 1 DEI for less than $1 from the open market. Then, redeem them for $1 worth of USDC, DEUS or other collateralized assets.
Why Did The DEI Lose Its USD Peg?
The DEI lost its USD peg because the DEUS finance ecosystem has lost over $30M in the last two months to two flash loan hacks. According to Coinmarketcap data, the DEI isn’t the only one suffering a dip; the DEUS token also lost 45% of its value today. It has lost 13.42% of its value in the past 24 hours and now trades at $256.49.
A DEUS finance report opined that these two factors caused the decline in the stablecoin’s value while its collateral ratio also declined by 43%. The low collateral ratio makes it difficult to redeem the DEI since there isn’t sufficient capital backup for the stablecoin.
As the DEI stablecoin lost its dollar peg, many arbitrageurs are capitalizing on the chance to make profits. They are buying massive amounts of DEI from exchanges and redeeming them for $1 worth of the USDC and other collateral. Consequently, the DEUS finance team has stopped this redemption process to prevent a collapse of the stablecoin and possibly regain its USD peg.