Through a tweet, the company said that they were ceasing operations because of regulatory inquiries. The tweet did not explain what the regulatory concerns were, or who the regulators are.
DMM said that mTokens (DMM’s interest earning stable coin tokens) could be redeemed at any time. Unfortunately the price of those mTokens would fall to 0% by Feb 10, 2021.
Soon after this announcement, the price of DMM’s governance DMG tokens plummeted from about $0.50 to $0.10, an 80% drop.
What Did DMM do and Why Was it Closed?
DMM had offered token swap and farming on the Ethereum blockchain, in an ever-growing and complex DeFi landscape. On Jan. 6, 2021, DMM released a roadmap for the year, including plans for an update to the user interface, more trading pairs, more languages, and more partnerships.
DMM stands for “digital money market” and the most robust functionality of the site was the ability to earn interest on stable coins. In September, DMM started offering 6.25% APY interest on these coins. This is a great rate by the standards of traditional banks, but not impressive in the grand scheme of digital finance.
What Regulator and What Regulation?
In the meantime, users scrambled to understand what had happened.
Others claimed they were unable to redeem their mTokens.
Though the DMM website claims that the company shut down because of regulators, it was not immediately clear what rules they violated. Is it possible that an entity backed by such an experienced investor as Tim Draper would fake a shut down as an exit scam?
Also working against an exit scam theory, DMM’s governance tokens, while they had a market cap over $25 million in January, did not come from hard, stable assets. Users apparently had the chance to redeem their stable coins and only the plummeting governance token lost all its value.
On the other hand, it is suspicious that DMM’s market cap reached its high rapidly, gaining $10 million in just a week. The price spiked, and then suddenly, the announcement of closure came. Whoever had that information first must have sold their tokens right away.
But there is one greater concern. DeFi companies could be shut down by governmental regulators in the near future, causing similar crashes. It does seem strange that DMM would be one the first casualties, in that it is little-known with a relatively small total value locked.
Also strange is that a site that claims to be decentralized was forced to cease operations at all. Surely, an entity like this, a DeFi and Yield farm swap platform, would not need any government blessing to function. For some, that is the whole point.