A DeFi Bank Run: Iron Finance, IRON Stablecoin, and the Fall of TITAN

Kanis Saengchote

No 155, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: Bank runs are a natural phenomenon for financial institutions that issue fixed value liabilities (e.g. money) that are backed by assets with uncertain value. I analyze Iron Finance, a decentralized finance (DeFi) protocol that issues stablecoin (a token with fixed nominal exchange rate: IRON) liabilities in exchange for a basket of other tokens (including a token issued by the protocol itself: TITAN). A combination of mathematical algorithms and incentive to arbitrage is used to maintain the exchange rate peg, but a shock to the protocol sent it into a downward spiral – much like a bank run. The incentives built into the protocol to defend the peg exacerbated its unravelling, raising the challenge of how DeFi protocols can address this vulnerability while remaining decentralized.

Keywords: DeFi; Stablecoin; Bank Run; Self-fulfilling Panic (search for similar items in EconPapers)
JEL-codes: G00 G23 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2021-07
New Economics Papers: this item is included in nep-ban and nep-pay
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.pier.or.th/files/dp/pier_dp_155.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pui:dpaper:155

Ordering information: This working paper can be ordered from
https://www.pier.or.th/en/dp/155/

Access Statistics for this paper

More papers in PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by ().