DEI Stablecoin Depegging

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DEI

DEI aimed to create a stablecoin which could be swapped across multiple chains without any cost. Unfortunately, after losing a significant amount of collateral in March 2022, the protocol became dependant on the availability of liquidity in farming pools. The whole thing depended on there being persistent demand for the stablecoin token.

DEI tried a wide variety of different approaches to revive the coin and re-establish the peg, but were ultimately unsuccessful. Eventually, a new "DEI" coin was launched which would allow users of the old coin to get back a fraction of the coins which they originally had. While CoinGecko has listed the new token, most public sites such as CoinMarketCap and CoinBase have yet to list the new token.

Need To Integrate:

About DEI

DEUS Finance is a decentralized finance (DeFi) platform that provides the infrastructure for building various financial instruments, including synthetic stock trading platforms, options and futures trading, and more. It supports multiple chains, including Ethereum, Fantom, Gnosis (xDai), HECO, BSC, Polygon, and AVAX.

The DEUS ecosystem consists of two tokens: DEUS and DEI. DEUS is the protocol token that represents a fractional portion of DEI and can be vested to earn protocol fees. DEI operates on a fractional reserve model, similar to frax.finance. It is designed to be used as a unit of account for derivative-based trading on the DEUS infrastructure layer. Users who utilize DEUS v3 and trade with DEI as the stablecoin will benefit from improved fee structures compared to using USDC. DEI is a fractional reserve stablecoin that is cross-chain enabled with a native unified bridge. It serves as collateral for third-party instruments built on the DEUS Finance platform and enables cross-chain liquidity. DEI aims to provide a stable and efficient trading experience for traders, protocols, and market makers within the DEUS ecosystem. DEI aims to be the stablecoin of choice for users across different chains, offering usability and redeemability across all chains. It addresses issues of cross-chain liquidity by bridging tokens in a scalable and decentralized way, allowing users to send a stablecoin to any chain without slippage.

DEUS Finance has a roadmap that outlines the evolution of the platform. The v2 release, called Apollo, introduced DEI as a cross-chain stablecoin with a unified native bridge and a high APY stable farm. The v3 release, Athena, will include advanced mechanisms to improve capital efficiency and introduce features like automated counter-trading and liquidation systems. The v4 release, Vulcan, will implement a targeted incentive system with a referral program and payout system for automated rewards.

The platform also offers veDEUS, a vested token mechanism where users can lock their DEUS tokens to earn platform fees and gain protection against dilution. veDEUS also serves as the governance token of the DEUS Finance protocol.

DEI is an algorithmic stablecoin that operates across different blockchain networks within the DEUS ecosystem. DEI does not require over-collateralization and is backed by a trusted stablecoin and fractionally backed by DEUS tokens. It consists of approximately 10% DEUS tokens and 90% of another trusted stablecoin, with the exact composition varying depending on the specific blockchain and the collateral ratio constantly adjusted by arbitrage bots. The collateral ratio of DEI is continuously monitored and adjusted using arbitrage bots. DEI aims to facilitate seamless liquidity bridging across multiple blockchains in a scalable and decentralized manner, allowing users to transfer stablecoins between chains without experiencing slippage.

The fractional portion of DEI (the DEUS tokens) is burned when minting, creating a direct benefit for DEUS token holders and liquidity providers. DEI's vision is to empower cross-chain liquidity by allowing users to bridge and redeem DEI with zero slippage. This is facilitated through the stablefarm, a farming pool incentivizing liquidity provision, and the DEUS/DEI pool for further investment in the DEUS ecosystem.

On the DEI homepage, key features and statistics are highlighted including the current price, total supply, and collateral ratio, indicating the percentage of collateral backing DEI, and total holdings of USDC, the stablecoin used to back DEI. Users have the option to mint DEI or redeem it, allowing for flexibility in transactions. DEI Bonds can also be redeemed, and veDEUS allows users to lock their DEUS tokens and earn rewards.

Various social media channels like Discord and Telegram are provided for community engagement. DEI is additionally listed on CoinMarketCap, CoinGecko, and as a supported asset for CoinBase wallet. Additional stats related to DEI, DEUS, and xDEUS are displayed, including price, supply, market cap, and projected supply growth. The combined supply and market cap of xDEUS and DEUS are also presented, along with inflation rate and weekly emissions.

The Reality

There is a long history of stablecoin failures, and algorithmic stablecoins are especially risky. It can often be challenging to deal with human emotions such as fear, and once a stablecoin loses the peg, a large part of it's value which comes from the stability aspect is lost. TBD - expand on this.

The DEI website features a disclaimer.

"Users interacting with this software do so entirely at their own risk."

What Happened

After a smart contract breach in March 2022, and in the aftermath of Terra/Luna, users started panicking and the $1 peg on the DEI stablecoin could no longer be maintained.

Key Event Timeline - DEI Stablecoin Depegging

Date	Event	Description
March 2022	DEUS Finance Flash Loan Attack	Deus Finance suffers an exploit resulting in losses of over $3 million worth of Dai (DAI) and Ether (ETH). The hackers manipulated a price oracle for flash loans by exploiting the StableV1 AMM pair of USDC/DEI. This manipulation led to the insolvency of users' funds. The hackers managed to steal 200,000 DAI and 1101.8 ETH, and the total amount of stolen funds could be even larger than the initial estimate. The stolen funds were then funneled through the Tornado Cash coin mixer tool using the Multichain Protocol. Deus Finance has closed its DEI lending contract and assured that its DEUS and DEI tokens are unaffected. The CEO of Deus Protocol, Lafayette Tabor, announced reimbursement plans, including the creation of a new contract for affected users to repay their loans and a feature to swap DEI for a small MUON allocation.
April 8th, 2022 1:34:29 PM MDT	New DEI Peg Mechanism	Lafayette Tabor published a Medium article proposing a new DEI pegging mechanism to the community. He acknowledge that the DEI stablecoin had been trading below $1 for some time, and outlined new measures to maintain the peg at $1. One of these measures is the Stability Fee, inspired by MakerDAO's model, where the interest rates on overcollateralized loans increase if DEI remains below $1 for an extended period. The current scenario allows for natural arbitrage between $0.997 and $1.003, while the AMO (Automated Market Operator) buys back DEI when it falls below this range. In the new scenario, additional measures are introduced to keep the peg at $1. These measures include a Stability Fee inspired by MakerDAO, where interest rates on loans increase if DEI remains below $1 for an extended period, incentivizing borrowers to buy back DEI. This encourages borrowers to buy back DEI and return it to the peg. The protocol also uses the AMO (Arbitrage and Market Operations) to imitate natural user behavior and help maintain the peg. Additionally, AMOv3 is being introduced to restore the peg at random times, but it will increase interest rates as a "punishment" for borrowers, forcing them to buy DEI above the peg. The protocol also plans to write debt from the fractional system to the overcollateralized system to reduce global risk and increase demand for DEI below $1. The fractional-to-overcollateralized ratio is currently 2.16, with more fractional DEI minted than overcollateralized DEI. The protocol will activate a buyback and collateralization mechanisms to support the stability of DEI. The introduction of DEUS Treasury bonds allows users to purchase bonds with fixed interest and expiration dates, ensuring liquidity and stability for DEI. The sale of bonds will continue until there is a 1:1 USDC treasury for every DEI in circulation. Overall, these measures aim to ensure that DEI maintains its peg to the US dollar.
April 18th, 2022 6:30:00 AM MDT	Yield Farming Marketing	Promotion on Twitter about lots of placed to Yield Farm DEI/USDC on Fantom.
April 28th, 2022	Second Flash Loan Attack	The Deus Finance DAO is exploited again in a flash loan attack for the second time in two months, resulting in a loss of approximately $13.4 million worth of cryptocurrency on the Fantom Network. The attacker used a flash loan of $143 million on the Fantom blockchain to manipulate the price of DEI, the protocol's governing token, and borrowed additional funds using DEI as collateral, inflating the value of certain assets and borrowing funds to make a profit. The borrowed funds were then sold for USDC, and the flash loan was repaid in the same transaction. The flash loan amounted to $143 million, and the attacker's profit was estimated at $13.4 million, although the total losses to the protocol could be higher. The stolen funds were subsequently laundered through Tornado Cash on the Ethereum network. Deus Finance temporarily halted DEI lending and assured users that their funds were safe. This incident follows a similar flash loan attack in March, where $3 million was stolen from the project. The price of DEUS reportedly experienced a 16.5% decrease in the following 24 hours.
May 4th, 2022 9:24:00 AM MDT	No Impermanent Loss Marketing	DEI is marketed on Twitter as having no impermanent loss.
May 11th, 2022	Terra/Luna Loses Their Peg	TBD - need to add information on the Luna/Terra collapse.
May 12th, 2022 6:16:09 AM MDT	Discord Hangout May 11th	A video of the Deus Dao Discord hangout is uploaded to YouTube. During the discussion about UST, DEI, and DEUSv3, several important points were highlighted. It was acknowledged that all stablecoins rely on user trust at some point, emphasizing the need for a responsive committee. There was a mention of DEUS's ability to swiftly react to unexpected situations, such as exploits and the recent SCREAM liquidation. UST was noted to have low liquidity compared to its market cap, making it susceptible to attacks. The introduction of collateral for DEI was mentioned as a measure to enhance stability. AMOv3 was described as a means to connect DEI liquidity to the Lending protocol using USDC and USDT, thereby stabilizing the peg. Bonds were discussed as a way to incentivize liquidity providers over an extended period, preventing rapid price declines. The development of fUSD_v2 with the Fantom Foundation, collaboration with Wall Street broker Muon Oracle and HedgerXYZ for a decentralized FX protocol, and upcoming features like options, perpetuals trading, and Hedger were also highlighted. Finally, the implementation of BrightID was mentioned, which would enable anonymous wallets to build reputations and potentially reduce collateral requirements. A summary of the Deus DAO Discord video was prepared.
May 12th, 2022	Update To Pegging Mechanism Disabling AMO	Lafayette Tabor updated the Medium article proposing a new DEI pegging mechanism to indicate that they have "deactivated the AMO today in anticipation of what happened at UST, to cooldown the market and not deploy further treasury assets". They plan to reactivate the AMO with a new monetary policy model that will be rolled out gradually. The upgrade introduces an AMO that interacts with money markets and issues treasury bonds to ensure a 1:1 backing of all DEI (the stablecoin) in circulation. The protocol aims to maintain the peg of DEI and mitigate risks faced by other stablecoins like UST and Luna. The DEI protocol utilizes collateral-backed fractional minting, overcollateralized minting with non-correlated assets, and P2P money markets with dynamic interest rates. They also introduce DEUS Treasury bonds with fixed yields, allowing users to buy bonds with desired expiration dates to earn fixed interest over time. The goal is to sell enough bonds to achieve a 1:1 USDC treasury for every DEI in circulation.
May 13th, 2022 6:30:00 AM MDT	Scream Integration Set Up	DeusDao announces that DEI can now be lent or borrowed on the third party Scream.sh platform.
May 13th, 2022 9:30:00 AM MDT	Quest For Twitter Lead	DeusDao announces they are looking to hire a Twitter lead, and candidates should apply online.
May 14th, 2022 5:25:00 AM MDT	Total Market Supply Update	The market cap of DEI is reported as $88,737,181.
May 15th, 2022 5:20:08 AM MDT	Treasury Bonds Medium Post	The DEUS Protocol announces plans to launch fixed-rate DEUS Treasury bonds with maturities ranging from 8 weeks to 52 weeks, aiming to stabilize the DEUS stablecoin's peg at $1 through fully collateralized backing. Initially, the bonds will be sold in exchange for stablecoins like USDC, DAI, and FRAX, with plans to include volatile assets later. DEUS Treasury bonds function similarly to US Treasury bonds, with the principal repaid in stablecoin after maturity. The protocol currently holds 65 million DEI tokens backed by 35 million DEI acquired through the AMOv3, and the bond program will temporarily remove 35 million DEI from circulation while adding collateral. Bondholders can redeem their bonds for collateral and earn fixed interest until maturity. The protocol aims to mitigate selling pressure on DEI by offering attractive programs to bondholders and repurchasing DEI to offer as Treasury Bonds. The bond sale follows a reverse Dutch auction model, and bonds may be implemented as NFTs. DEUS Treasury bonds offer low-risk fixed-interest products with a dynamic redeeming mechanism based on the USDC balance in the treasury.
May 15th, 2022 9:30:00 AM MDT	Treasury Bonds Announced	The DeusDao announces the launch of the DIP-7 Treasury Bonds program, "a treasury bond program aimed at securing peg stability". "These treasury bonds allow users to deposit collateral and earn a fixed interest based on the maturity date." They include a link to the posted Medium article.
May 15th, 2022 1:48:00 PM MDT	CoinMarketCap Crash Speculation	CoinMarketCap community member "bots4trading" speculates that DEI may be "[t]he next stable to crash".
May 16th, 2022 6:18:00 AM MDT	CoinDesk Article Published	CoinDesk reports that Deus Finance's stablecoin DEI, which operates within the Fantom-based decentralized finance (DeFi) project Deus, has lost its peg with the US dollar and dropped to as low as $0.54. This loss of peg follows a trend of other algorithmic stablecoins experiencing similar issues. Algorithmic stablecoins are designed to automatically maintain a peg to another currency, unlike centralized stablecoins backed by actual dollars. DEI consists of 10% DEUS tokens and 90% other stablecoins and uses arbitrage bots to adjust its collateral ratio and maintain the peg. The decline in DEI's value can be attributed to liquidity issues, with traders selling DEI for other tokens amid price fluctuations and concerns about risks. Deus developers paused the redemption mechanism for DEI, further impacting liquidity. Despite the drop, DEI has recovered to around $0.72, and developers have a repegging plan in place to prevent future peg collapses. The loss of peg by DEI follows the collapse of Terra's UST stablecoin, which also caused panic and sell-offs in other stablecoins.
May 16th, 2022 7:38:00 AM MDT	DeusDao Working Around The Clock	The DeusDao team announces that their "team is working around the clock to restore the DEI peg. Mitigation measures were implemented immediately and solutions are being developed for long-term stability."
May 16th, 2022 12:12:58 PM MDT	Decrypt Article Published	Decrypt reports that DEI, the algorithmic stablecoin from DEUS Finance, has lost its dollar peg and plummeted in value by 30%. DEI, which resembles Terra's UST stablecoin, currently trades at $0.66 after hitting an all-time low of $0.55. Unlike UST, DEI is collateralized, with users able to mint 1 DEI by depositing $1 worth of collateral such as USDC, FTM, DAI, WBTC, or a combination of DEUS and USDC. However, DEUS Finance recently experienced two flash loan attacks, leading to a loss of over $30 million and depreciating the collateral value of DEI. With the collateral ratio falling to 43%, the redemption process for DEI has been halted to stabilize the coin, and plans have been announced to make it fully collateralized.
May 17th, 2022 3:53:06 AM MDT	Finbold Article Published	Finbold reports that DEI has lost its peg to the U.S. dollar, following the trend of other algorithmic stablecoins. At the time of the article, DEI is currently trading at $0.64. Deus Finance's DeFi protocol uses DEUS and DEI tokens, with 1 DEI requiring $1 of collateral. The low collateral ratio of 43% has made it difficult to redeem DEI tokens, as there is not enough capital backing the stablecoin. Traders are taking advantage of the situation, buying DEI coins and exchanging them for $1 worth of collateral. Deus Finance has halted the redemption process to stabilize the coin. The volatility in stablecoins could impact the crypto market, and investors should monitor the movement of USDT, the largest stablecoin, to gauge market direction.
May 19th, 2022 5:39:41 AM MDT	Medium Article Updated	Lafayette Tabor updates the Medium article proposing a new DEI pegging mechanism to the community. This change just properly integrates his May 12th change into the body of the document.
May 19th, 2022 5:00:00 AM MDT	Fortune Article Published	Fortune publishes an article on the DEI collapse. "Last week’s collapse of cryptocurrency UST spelled trouble for the entire category of stablecoins. Now another one, DEI, has lost its peg to the U.S. dollar."
May 19th, 2022 9:30:00 AM MDT	Remaining Busy Behind The Scenes	DeusDao posts a quick update to announce that they remain busy behind the scenes working on repegging the token.
May 19th, 2022 11:08:37 PM MDT	Kalkine Media Report on YouTube	Kaline Media publishes a general overview of the stablecoin collapse, covering both TerraUSD (UST) and DEI . Stablecoins, a category of cryptocurrencies designed to maintain a stable value, have been experiencing a significant dip in value, causing concern within the crypto community. Stablecoins are typically pegged to assets like fiat currency or precious metals, with the expectation that their value will remain constant. However, both prominent stablecoins have lost their peg, triggering negative sentiment. DEI is part of the DEUS Finance project, which aims to be a decentralized finance ecosystem offering services such as crypto loans. DEI is supposed to maintain a peg with the US dollar but has recently suffered a substantial loss, losing over 25% of its value in one day. Similar to TerraUSD, the fall of DEI may be linked to issues with how algorithmic stablecoins maintain their reserves to back the asset. This instability in stablecoins has raised concerns about the reliability of these types of cryptocurrencies.
May 23rd, 2022 6:00:00 AM MDT	Redemptions Starting To Stabilize Peg	DeusDao reports that the redemptions appear to be starting to stabilize the peg. "As per announcements in our community, $DEI redemptions have begun to stabilise the peg. $DEI holders can now redeem their DEI for USDC & vDEUS (a voucher that can be redeemed for DEUS in the future) in tranches."
May 24th, 2022 5:30:00 AM MDT	Tranche 3 Redemptions Open	The Tranche 3 opens for DAI redemptions as a price of $1.1. The team also promises more information in the future.
May 24th, 2022 9:30:00 AM MDT	DEUS Treasury Bonds Announced	DEUS treasury bonds are promoted again on Twitter. "A solution to automate an unbreakable backing of 1 DEI:1 USDC while also dampening $DEUS selling pressure into the future." A reference to the treasury bond proposal is included.
May 25th, 2022 5:54:00 AM MDT	Redemptions Available Now	The DeusDao team announces that redemptions are now available and links to their redemption page on Twitter.
May 26th, 2022 1:21:49 PM MDT	Dynamic Redemption Tranches	The DeusDao team announces dynamic redemption tranches on Twitter and links to a Medium page. Dynamic redemption tranches aim to incentivize participation, ensure debt payback, and provide options for vDEUS holders within the DEUS protocol. TBD get details from Medium page.
May 30th, 2022 7:14:00 AM MDT	Redemption Reminder	The DeusDao team announces that $9.6m worth of DEI has already been redeemed, and encourages more users to redeem.
June 4th, 2022 10:00:00 AM MDT	Encouraging DAI Redemption	TBD "Redeem your $DEI, play your part, and receive additional value in return".
June 7th, 2022 9:30:00 AM MDT	DEI Stability Plan Released	The DeusDao account on Twitter releases the DEI stability plan with the goal of repegging DAI. TBD more details.
June 7th, 2022 4:46:11 PM MDT	DEI Bond Introduction	Lafayette Tabor introduces DEI bonds on the DEI Medium article, as an extension to the redemption program. DEI Bonds offer a lower risk/reward option for DEI holders who are not willing to swap DEI for higher-risk assets like vDEUS. These bonds allow users to get their DEI back at the end of the bond maturity period, which is individually based on the NFT received at the bDEI mint. bDEI, a liquid ERC20 token, can be traded for DEI on stableswaps and can be deposited into staking contracts to earn yields in DEUS and potential DEX tokens. The target annual percentage rates (APRs) for bDEI/DEI LP staking and bDEI single staking are 20% and 10%, respectively. The earliest bonders receive NFTs that reduce their bond maturity time, providing additional protocol profits and one-time interest. Overall, DEI Bonds aim to reduce DEI circulation, increase backing for remaining DEI, and provide an exit strategy for different risk profiles.
June 8th, 2022 9:30:00 AM MDT	DEI Bonds Announcement	DeusDao announces the DEI bonds program on Twitter as "low risk/reward".
June 10th, 2022 9:30:00 AM MDT	DEI Bonds Announcement	Another announcement about bDEI. "$bDEI is bonded $DEI. Minting $bDEI removes $DEI out of circulation" "Tradable ERC-20 token. Can be swapped for $DEI at maturity. Can be staked to earn $DEUS rewards. Farming as $bDEI-$DEI."
June 11th, 2022 6:00:00 AM MDT	DEI Bonds Announcement	"Rewards for bonding $DEI. Staking $bDEI to earn $DEUS rewards, Farming with $bDEI-$DEI LPs on liquidity pools. Bond $DEI today."
June 11th, 2022 9:00:00 AM MDT	DEI Bonds Announcement	"$bDEI quick recap: -$bDEI will be redeemable for $DEI 1:1 after maturity -Minting $bDEI takes $DEI out of circulation"
June 17th, 2022 6:00:00 AM MDT	DEI Bonds Announcement	"How to bond $DEI? Bond $DEI at https://app.dei.finance/deibonds Early bonders receive a “Time reduction NFT” How does it improve $DEI stability? Bonding $DEI takes $DEI out of circulation, Thus increasing the collateral ratio of $DEI".
July 13th, 2022 4:26:00 AM MDT	Honourable Mention	Twitter user Proof of No Work mentioned this case along with other failed stablecoin projects in his Tweet.
July 15th, 2022 9:43:00 AM MDT	Redemption and Bond Contracts Closed	DEI announces that the redemption and bond contracts have now been closed, and that $40m in DEI has been successfully burned through the process. More information can be found on Discord.
July 17th, 2022 1:12:00 PM MDT	Lafachief Announces New DEI Deployment	Lafachief announces that they are working on a new DEI deployment with 95% backing and links to a Medium article with further information.
August 11th, 2022 3:30:00 PM MDT	Dawn of a New DEI	A Twitter promotion announces the new DEI platform being launched.
August 16th, 2022 7:00:00 AM MDT	Launching On WednesDEI	The platform will reportedly launch on Wednesday.
August 17th, 2022 10:58:00 AM MDT	Improved vDEUS Tokenomics	An announcement is posted with improved vDEUS tokenomics. TBD read more detail.
August 19th, 2022 4:00:00 AM MDT	Another DEI Another Dollar Liquidity Pool Launched	The Deus Finance team announces the launch of their "Another DEI Another Dollar" liquidity pool.
August 22nd, 2022 7:30:00 AM MDT	Total Value Locked Exceeds $8m USD	Deus Finance announces that the total value locked in the "Another DEI Another Dollar" liquidity pool now exceeds $8m.
August 30th, 2022 4:41:00 AM MDT	Fantom Intern Tutorial	TBD .
September 3rd, 2022 6:56:00 PM MDT	Total Market Supply Update	The total market supply of DEI is 7,560,345 (+ 3,208,172 minted in 12D).
September 16th, 2022 2:41:00 PM MDT	Move To Ethereum Announced	A thread is posted on why the DeusDao protocol will be moving to Ethereum.
September 17th, 2022 7:22:00 AM MDT	Move To Ethereum Announced	A relocation of the protocol to Ethereum is announced on Twitter.
September 23rd, 2022 11:57:00 PM MDT	DEI Redeployment	The DEI redeployment is announced on Twitter. "$DEI/ $USDC pools have been set up on and yield farming opportunities will be available in the coming hours & days"
October 4th, 2022 8:45:00 AM MDT	Deus V3 Live Discussion	A live discussion is posted on Twitter about Deus V3.
October 6th, 2022 6:53:00 AM MDT	Migration Period Ending	An announcement highlights that there are only a few days left to migrate.
October 10th, 2022 6:52:00 AM MDT	Another DEI Another Dollar	A new liquidity pool is announced named "Another DEI Another Dollar".
January 14th, 2023 10:04:08 AM MST	Clearing Up Old Debt	Lafayette Tabor posts another Medium article about a plan to clear up old debt by deploying a new version of DEI that is 95% backed by USDC, utilizing the remaining 20 million USDC from the old DEI. This migration aims to ensure a fully backed DEI and generate immediate profits to repay debts and improve the protocol's financial health. Pools on multiple decentralized exchanges (DEXs) will be incentivized to create demand and help clear the existing bad debt. The bad debt currently amounts to around 5.7 million DEI owed to Scream lenders and 3 million DEI owed to DEI bonders affected by impermanent loss (IL) and non-NFT bDEI holders. When minting the new DEI, users will deposit 1 USDC, of which 95 cents will be used as collateral, 4 cents will be allocated to clearing the bad debt, and 1 cent will be used to buy back DEUS and burn it. Current DEI holders have two options: they can hold DEIv1 until there is a protocol-surplus in USDC backing to swap it for bDEI and then redeem it for DEIv2, or they can swap DEIv1 for vDEUS and wait for DEUS to reach $250.
May 6th, 2023 12:47:00 PM MDT	Referenced As Hatrick	The situation is referenced in relation to another hack which affected the DEI protocol at this time.

Technical Details

TBD

The DEI stablecoin did not have reserves to back the coin, following an earlier March hack. The primary problem was due to the security and/or insurance of those funds lost in March.

Total Amount Lost

The total amount at risk has been estimated at $88,737,000 USD. The total amount lost has been estimated at $74,539,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

"With UST collapsing, the stablecoin market was shaken." "$DEI The next stable to crash?"

"DEI – which traded 3 cents below its peg on Sunday – lost 20 cents on Sunday night as traders likely exchanged DEI tokens for USDC amid a small amount of liquidity on decentralized exchanges, which caused price fluctuations. Lower prices led to more traders selling DEI for other tokens, presumably to protect against risks, which further contributed to a price drop."

"Traders [we]re taking advantage of th[e redemption] arbitrage mismatch, buying up DEI coins and exchanging them for $1 worth of collateral, making matters worse. Deus Finance reacted by halting the redemption process in order to try and stabilize the coin."

"First of all, we have been aware of DEI being below 1$ for several days now." "Our team is working around the clock to restore the DEI peg. Mitigation measures were implemented immediately and solutions are being developed for long-term stability." "Further updates to follow."

TBD Tweet was deleted and can't be found anymore.

Twitter Community Reactions

The Twitter community had some responses.

You disabled the redemption mechanism without any notice. Now people that were leveraged are liquidated. You are not even mentioning it in this post. Are you looking for exit liquidity ? Sketchy

Too late for me.. We may have a lot of confidence in this project that after a few days, uncertainty sets in

Twitter Updates From DeusDao

An initial update from the DeusDao team was posted to assure the community they were working on restoring the peg.

We remain busy making progress behind the scenes, until formal announcements can be made you can join our TG & Discord channels to stay updated with direct feedback from the team & founders regarding the DEI re-peg progress

"Read up on the long-term future for $DEI stability: DEUS Treasury bonds! A solution to automate an unbreakable backing of 1 DEI:1 USDC while also dampening $DEUS selling pressure into the future." "To regain DEI’s peg to the U.S. dollar, the Deus Finance team is selling their own quasi-treasury bonds that they hope will incentivize people to add to the stablecoin’s liquidity. In a blog post, a member of the Deus Finance DAO said the stablecoin didn’t have enough USDC to back it because of a hacking in March in which $3 million of crypto was stolen."

"If DEI is below 1$ for a longer time, the interest rates of overcollateralized Loans increase every second. That mechanism pushes borrowers to buy back DEI below 1$ to pay back their loans more often."

"The collateral ratio of DEI is constantly monitored and adjusted via arbitrage bots, which continually trade $1 worth of the underlying tokens for 1 DEI, or vice versa, to ensure a peg." "Arbitrage bots, which simultaneously buy and sell the same asset to profit from small differences, were ensuring the peg by trading $1 worth of an underlying token for 1 DEI and vice versa."

"AMO v2 will imitate natural user behavior, using lending, borrowing, repaying buyback, and collateralizing."

"AMOv3 the peg-savior. Additionally, we will implement that at a random time. Without any notice, we will use the AMO to bring the price back to 1$, but this will “punish” all borrowers by increasing interest rate by more significant percentages, so they will need to buy DEI above peg."

"With this dynamic, we will decrease the global risk by writing the balance to the isolated risk side when DEI trades below 1$; additionally, the increasing interest rate will naturally lead to increased demand for DEI below 1$."

"We deactivated the AMO today in anticipation of what happened at UST, to cooldown the market and not deploy further treasury assets. AMO will get activated again over the night, with a new monetary policy model that will be rolled out in parts today and in the future."

"We believe a confident peg at $1 and fully collateralized backing is the only answer to resolve short-term peg stability."

"The $DEI redemption and bond contracts have been closed. Almost 40m DEI has been removed from circulation and we want to say a huge thank you to the community for their support and cooperation thus far." "The DEI contract is being updated and additional layers of security are being implemented. DEUS v3 development is ongoing and after some final internal tests we will be deploying a public testnet very soon, so stay tuned."

"So why is DEI dumped so hard?" "Why is $Dei down about 50% in 24 hours while $Deus is up 30%. Im really confused."

Dynamic Redemption Tranches

Dynamic redemption tranches refer to a game theoretical approach used to address the Prisoner's Dilemma in the context of the DEUS protocol. The protocol's optimal action is for everyone to redeem their holdings, followed by acquiring Bonds. However, most users are currently holding out, resulting in a negative valuation. Collaboration is needed to reduce the supply of DEI and increase its USDC backing for everyone to benefit.

Neutral territory is reached when a majority redeems while the other majority holds, resulting in a balanced outcome. After the redemption phase, the opportunity to redeem DEI at a high valuation diminishes over time. To progress to the next phase and open Bonds, significant participation in redemption or reaching neutral ground is necessary.

Early redeemers face more risk but contribute to the protocol by triggering more redeems for others. The final tranche introduces dynamic redemption based on DEUS prices and liquidity-drip thresholds. Payouts are made based on specific thresholds and the percentage of aggregated DEX liquidity. vDEUS can be staked for different durations with corresponding fixed APRs. If the price trigger is not reached, reverse options are available for exiting vDEUS positions. Once the price reaches $250, all exit options are closed, and APRs go to 0%.

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

"[W]e are working on a newly deployed DEI that will have a 95%+ backing again & laid out a clear plan how future revenues can compensate for past debts." "[W]e are also in contact with Scream to make sure future protocol profits will directly benefit Scream debt."

"As per announcements in our community, $DEI redemptions have begun to stabilise the peg."

"It’s clear that only with a fully intact and backed DEI, DEUS can generate revenue needed to clear up past debt. Free circulating DEI is jeopardising current and future profits until health is installed."

"What is $bDEI? $bDEI is bonded $DEI. Minting $bDEI removes $DEI out of circulation." "$DEI bonds are live. These are low risk/reward and $DEI in the process."

"On top of the WednesDEI redeployment, lafachief is preparing an article on the vDEUS revamp. The changes will create a maximum supply cap of 600k $DEUS. vDEUS will become an ERC20. Liquidity Pools will be available & incentivized."

"Until now Market Forces should have made everyone realize that we cannot offer an early non-dilutive repayment." "Such early repayments are dilutive and extract value from the protocol and ultimately from the people that should be repaid, as repayments become slower and slower."

"Even the current “optimistic” outlook is a repayment over 3–7 years at a yearly rate of 40% of your DEI redeem value, given the price of DEUS stays stable at $40, as currently debt is repaid in DEUS tokens its more likely the price goes down more, crippling repayments further until they stall completly."

"vDEUS becomes an ERC20 token, migrations will be possible approx next week." "vDEUS staker are receiving real yield as compensation for the waiting time in form of 25% APR in vDEUS that can be traded to DEUS on DEXs for instant liquidity or held until conversion for maximum value."

"revamping the vDEUS model enables the protocol to have a maximum inflation of 260k DEUS. ((50m *1.25) times 1/250 DEUS) which adds to the (100k+APR) veDEUS. With current circulating supply and farming rewards, leading to a maximum supply just short of over 600k DEUS, a modest increase from the pre-blackswan max-supply of 300k DEUS."

"vDEUS APR is guaranteed for one year or until DEUS price hits $250. bDEI is non-dilutive for DEUS, it guarantees legacy DEI holders fully-backed DEI when the protocol has enough cash."

"Contract theory studies the incentives needed to reach a pareto improving equilibrium: Redeemers make DEUS savings possible by being repaid later. They get a compensation in the form of being paid back more later (a 25% APR accrued)."

"DEI token contract has been redeployed with a 99/1 mint/redeem gap." "As an official @SolidlyETH Partner @DeusDao We will follow them on their move to Ethereum." "With the upgraded Solidly moving to Ethereum, we are planning to join suit by moving our $DEI minter and collateral."

"$DEI has been redeployed, currently with 1% seigniorage. The minting ratio is 100% with a redemption ratio of 99/1. The 1% in seigniorage will primarily be used to buy back and burn $DEUS." "The redeem ratio will begin at 99% and gradually trend towards 90% over the coming weeks leading up to the first bDEI maturity date at the end of September." "This will result in up to a 10% $DEUS burn per minted $DEI."

"A new-look app accompanies this redeployment, with a revamped dashboard containing all stats at a glance. An extensive analytics (with historical charts) page is being built and will be released very soon." "This redeployment also sees the implementation of the Lossless protocol. Lossless offers an additional layer of security and mitigates the impact of exploits by utilizing threat identification tools and unique monitoring systems." "Ontop of the amazing wedsnDEI redeployment, there is a new article that outlines new changes to vDEUS including creating a 600k soft cap to the $DEUS supply."

On October 5th, "Only a few days left before the migration period ends." So it would seem that the migration period is over. "We wont be allowing any adjustments to these newly implemented changes, these ideas were discussed & formalized internally with great input from people experienced in debt restructuring." "We hope all parties can be happy with the revamped plan, since it is aligned with all financial principles and maximizes value for all parties."

"And I with 14.000 ust Lost in the Old DEI. I [hope] that New DEI are not the New Old DEI." "Better have some money to back this coin this time." "Fool me once shame on you..."

Successful Redemptions Of DEI Bonds

An announcement.

The $DEI redemption and bond contracts have been closed.

Almost 40m DEI has been removed from circulation and we want to say a huge thank you to the community for their support and cooperation thus far

The DEI contract is being updated and additional layers of security are being implemented.

DEUS v3 development is ongoing and after some final internal tests we will be deploying a public testnet very soon, so stay tuned.

To read the full announcement and latest news on DEI and DEUS v3, please join the DEUS Discord.

Total Amount Recovered

The total amount recovered is unknown.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

Working To Clear Up Old Debt

The plan involves deploying a new version of DEI that is 95% backed by USDC, utilizing the remaining 20 million USDC from the old DEI. This migration aims to ensure a fully backed DEI and generate immediate profits to repay debts and improve the protocol's financial health. The new DEI will target a 95% USDC backing, but during the minting process, 100% USDC will be required until the debt is cleared. Pools on multiple decentralized exchanges (DEXs) will be incentivized to create demand and help clear the existing bad debt. The bad debt currently amounts to around 5.7 million DEI owed to Scream lenders and 3 million DEI owed to DEI bonders affected by impermanent loss (IL) and non-NFT bDEI holders.

When minting the new DEI, users will deposit 1 USDC, of which 95 cents will be used as collateral, 4 cents will be allocated to clearing the bad debt, and 1 cent will be used to buy back DEUS and burn it. The goal is to have 250-600 million USDC in open interest to cover the total bad debt, with additional profits from V3 and other protocol revenues. Current DEI holders have two options: they can hold DEIv1 until there is a protocol-surplus in USDC backing to swap it for bDEI and then redeem it for DEIv2, or they can swap DEIv1 for vDEUS and wait for DEUS to reach $250.

Promotions of Bonded DEI

"I am really curious, when do we get our hands on b-bDEI?"

Another DEI Another Dollar Liquidity Pool

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Community Skepticism

Multiple members of the community expressed skepticism about the relaunched protocol.

Individual Prevention Policies

Avoid the use of smart contracts unless necessary. Minimize the level of exposure by removing or withdrawing assets whenever possible. Aim to choose smart contracts which have obtained third party security audits, preferably having been audited by at least three separate reputable firms. Pay attention to the audit reports, which smart contracts are covered, and whether the smart contract has been upgraded or modified since the report. Ensure that any administrative functions with the ability to remove funds from the smart contract are under the authority of a multi-signature wallet which is controlled by at least three separate and reputable entities.

When using any third party custodial platform (such as for trading), it is important to verify that the platform has a full backing of all assets, and that assets have been secured in a proper multi-signature wallet held by several trusted and trained individuals. If this can't be validated, then users should avoid using that platform. Unfortunately, most centralized platforms today still do not provide the level of transparency and third party validation which would be necessary to ensure that assets have been kept secure and properly backed. Therefore, the most effective strategy at present remains to learn proper self custody practices and avoid using any third party custodial platforms whenever possible.

Store the majority of funds offline. By offline, it means that the private key and/or seed phrase is exclusively held by you and not connected to any networked device. Examples of offline storage include paper wallets (seed phrase or key written down and deleted from all electronic media), hardware wallets, steel wallet devices, etc...

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

The DEI stablecoin did not have reserves to back the coin, following an earlier March breach of the collateral reserves. This could have been avoided by using a simpler multi-signature scheme to protect the funds or obtaining more thorough smart contract auditing.

All wallets, minting functions, and critical infrastructure should be implemented with a multi-signature requirement, with a recommended minimum of 3 signatures required. This means that making important changes or approving spending will require the keys held by at least 3 separate individuals within the organization to approve. The multi-signature should be implemented at the lowest layer possible, all key holders should have security training, and all key holders should be empowered and encouraged to exercise diligence.

All aspects of any platform should undergo a regular validation/inspection by experts. This validation should include a security audit of any smart contracts, reporting any risks to the backing (of any customer assets, ensuring treasuries or minting functions are properly secured under the control of a multi-signature wallet, and finding any inadequacies in the level of training or integrity of the team. The recommended interval is twice prior to launch or significant system upgrade, once after 3 months, and every 6 months thereafter. It is recommended that the third party performing the inspection not be repeated within a 14 month period.

It is also a good idea to establish an industry insurance fund.

Work with other industry platforms to set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

The primary issue with the DEI stablecoin came about due to a breach of the liquidity pool reserves which provided collateral to back to DEI stablecoin. Once this collateral was taken, there were limited economic mechanisms by which the DEI protocol could recover their peg. A stronger security assessment could have prevented the loss of the original capital.

All platforms should undergo published security and risk assessments by independent third parties. Two assessments are required at founding or major upgrade, one after 3 months, and one every 6 months thereafter. The third parties must not repeat within the past 14 months. A risk assessment needs to include what assets back customer deposits and the risk of default from any third parties being lent to. The security assessment must include ensuring a proper multi-signature wallet, and that all signatories are properly trained. Assessments must be performed on social media, databases, and DNS security.

Set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services within the country, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.