Deus Finance's stablecoin Dei (DEI) lost its peg to the U.S. dollar, falling as low as 54 cents in European hours on Monday, data showed. The decline came amid several algorithmic stablecoins losing their pegs last week.
Algorithmic stablecoins are meant to be automatically pegged to the price of another currency. They differ from centralized alternatives such as Tether (USDT) or USD Coin (USDC), which are backed by actual dollars or equivalent assets stored in a bank.
DEI, valued at over $62 million by market cap, operates within Deus, a Fantom-based decentralized financial project (DeFi). It is 10% DEUS tokens and 90% other stablecoins.
DEI's collateral ratio is constantly monitored and adjusted via arbitrage bots that continuously trade $1 worth of tokens for $1 DEI or vice versa to ensure a peg.
DEI - which was trading 3 cents below its peg on Sunday - lost 20 cents on Sunday evening as traders likely exchanged DEI tokens for USDC amid low liquidity on decentralized exchanges, causing prices to fluctuate. Lower prices led more traders to sell DEI for other tokens, presumably to hedge against risk, further contributing to a price drop.
Separately, Deus developers had previously suspended a redemption mechanism for DEI that allows investors to exchange DEI for other tokens, which may have contributed to the price drop.
For example, developers explained on the Deus Telegram channel that the lower liquidity was partly due to traders exiting stablecoin pools following the collapse of UST last week, and that support for DEI tokens was lower than usual following a $13.4 million exploit on the Deus protocol in late April.
Meanwhile, DEI has regained the level of 72 cents at the time of writing, with Deus developers stating that a repegging plan using debt tokens was in place that would prevent the peg from collapsing in the future.
The collapse follows the Terra ecosystem project UST, which cost its investors billions of dollars when it lost its bond and fell to as low as 22 cents. The related token Luna (LUNA) fell from a price of over $100 earlier this month to one cent, losing 99.7% of its value in less than a week.
The panic around UST last week led to a similar sell-off in other stablecoins, such as Waves' USDN stablecoin, which lost 15%.