If TCR were adjusted upwards faster to 90% for instance, ~4.66 TITAN would be required with 80 USDC coin to create 105 IRON. Adding in the redemption fees, gas fees and slippage, our arbitrager would lose money in the process and so there is no incentive. 1% in the last hour), ~10.5 TITAN tokens will need to be provided with our 80 USDC tokens to mint 105 IRON ($2*10.5) + 80 = $1.01 which can only be sold on the open market for $.95. From our example earlier if the price of TITAN drops suddenly to $2 then at a TCR of 80.1% (adjusted. TCR could not be adjusted correctly during large price movements.Īn arbitrageur trying to mint new tokens to take advantage of a drop in the price of TITAN would find that the TCR is lower than it should be for tokens to be profitably minted. This was only updated to being dynamically managed yesterday evening at the height of the crash after the damage had been done. On Polygon, the TCR could only be lowered by 0.1% per hour.
Our arbitrageur would see the peg has shifted downwards and purchase the lower valued TITAN and USDC on the open market, redeeming it for 1 IRON, burning the titan and raising the peg. In the process,the value TITAN would decrease as more is available on the market and the IRON peg would decrease as the TITAN portion of it's redemption value has decreased temporarily. This process would lower the ECR and the TCR would be increased to compensate. A large number of IRON would be destroyed, USDC collateral would be removed from the vault and TITAN would be created and issued to our whale. If a large whale for example wanted to exit an IRON position, there may not be enough liquidity in an AMM pool such as quickswap to sell IRON directly so they would redeem the tokens through the redemption mechanism on iron.finance. Minting IRON at a Target Collateral Ratio of 80% with 80 USDC at price of 1 USDC = $1.05Īt a TCR of 80%, 80 USDC at 1 USDC = $1.05 and a current market price of TITAN at $3.00, then the amount of TITAN required in the minting process will be 7 ($7*3 + $80) = 105 IRON. In this case redeeming 100 IRON will result in 84.21USDC and 6.67 TITAN for 105 IRON of rewards.Īs IRON is minted, the price of TITAN rises as TITAN from the open market is burned in the minting process. Redeeming 100 IRON at 80% ECR(Effective Collateral Ratio) when 1 USDC = $0.95 and 1 TITAN is $3.00.Īt 80% ECR, the amount received for redemption will consist of 80% USDC token and 20% TITAN token. In theory, if the peg is above $1, IRON can be minted for $1 Redeem when Peg < $1Īs IRON is redeemed, the price of TITAN drops as new tokens are created through the redemption process: This percentage expresses the amount of USDC or BUSD token stored as collateral for the IRON token.ĮCR= USDC COLLATERAL VALUE / TITAN supplyįor a stablecoin to keep peg, it relies on arbitrageurs interacting with 3rd party exchanges/the open market (quickswap, sushiswap etc.) and minting or redeeming IRON to drive the peg up or down. This ratio expresses what percentage of USDC or BUSD token is required to mint IRON token.ĮCR stands for Effective Collateral Ratio and it is shown in percentage.
The TCR is used by the minting function and it is displayed as a percentage. Reading through the documentation, you'll see that the system relies on two ratios: What I believe actually happened was an issue with how the IRON stablecoin was meant to keep peg and is the same reason we've seen algorithmic stablecoins fail in the past. THis next portion is my detailed analysis based on the research I did on the project when it was first gaining traction. This project was doomed at the first large downturn to hit TITAN's price. So with the meltdown we won't know 100% until the devs release the post-mortem report but this wasn't a rugpull. Writeup of the iron.finance bank run yesterday
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