The synthetic over-collateralized stablecoin Falcon USD (USDf), issued by the decentralized finance (DeFi) protocol Falcon Finance, fell below its $1 peg on Tuesday due to market concerns over liquidity and collateral quality.
According to CoinMarketCap, Falcon USD (USDf) dropped to a low of $0.9783 on Tuesday morning. This decline has sparked renewed attention from the DeFi community, with some industry observers questioning the asset backing and governance structure of the token.
Alex Obchakevich, founder of Obchakevich Research, expressed his "concern about the current situation" in an interview with Cointelegraph, adding that rumors surrounding collateral quality are undermining investor confidence.
Unlike fiat-backed stablecoins such as USDC (USDC) and USDt (USDT), Falcon USD is not directly pegged to dollar deposits in a bank account but is minted by locking digital assets, including volatile cryptocurrencies.
Blockchain data analysis platform Parsec revealed on the X platform that the on-chain liquidity of USDf is declining. Parsec's data shows that as of the time of writing, liquidity stands at $5.51 million.
"Blockchain data shows a significant drop in liquidity, which will only exacerbate market panic," Obchakevich pointed out, citing Parsec data.
Andrei Grachev, managing partner of DWF Labs, which supports Falcon Finance and the stablecoin issuance entity, published a lengthy response on the X platform addressing the related accusations. He stated that stablecoins and Bitcoin (BTC) together account for 89% of the collateral assets (approximately $565 million), with the remaining 11% (about $67.5 million) in other cryptocurrencies.
Grachev also claimed that USDf's over-collateralization rate has reached 116%. To control risk, Falcon Finance employs a market-neutral strategy (i.e., not engaging in trades that bet on market fluctuations) for yield management and does not conduct directional trading. He emphasized, "Every USDf minted must be backed by stablecoins or equivalent, non-directional risk hedging positions."
He added that the peg of USDf primarily relies on market traders' spontaneous adjustments. If the stablecoin price is above $1, traders can mint and sell USDf; if it is below $1, traders will buy and redeem, thereby stabilizing price fluctuations.
"Although it briefly lost its peg due to market sentiment, the market has quickly stabilized and recovered," Grachev stated, adding that the company "is actively collaborating with multiple trading institutions to strengthen the peg mechanism."
According to asset proof materials disclosed to Cointelegraph, the stablecoin is currently said to have nearly $544 million in assets backing it, but the specific details of the supporting assets have not been disclosed. Cointelegraph has not independently verified this report.
Obchakevich, in his interview with Cointelegraph, noted that the post has raised many questions. For instance, he pointed out that the claim of "no alternatives" is overly optimistic and resembles a marketing strategy. He stated:
Others expressed their concerns more directly. A pseudonymous developer known as 0xlaw (who manages the Stream Finance yield farming protocol) posted on X (formerly Twitter), accusing Falcon Finance of holding tens of millions of dollars in bad debt and labeling USDf as a "scam."
According to 0xlaw, USDf is allegedly backed by assets with extremely poor liquidity, including a large reserve of MOVE tokens from Movement Network. In May of this year, Coinbase suspended trading of MOVE due to non-compliance with listing standards.
Another risk assessment report released by the DeFi research team LlamaRisk at the end of May raised further risk warnings. The report stated, "The Falcon team has unilateral decision-making power over the management of reserve assets." It also mentioned the possibility of over-issuance:
The report also expressed concerns about the lack of information disclosure, including the failure to disclose a complete list of reserve assets and issues with access to the insurance fund.
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Original article: “Falcon USD Stablecoin Loses Dollar Peg Due to Liquidity and Collateral Concerns”
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