USDF, a stablecoin with a market capitalization exceeding $540 million, briefly lost its peg earlier today. The incident raised concerns due to USDF’s ties to DWF Labs, a firm closely linked to Donald Trump’s crypto initiatives.
Falcon Futures, the issuer of USDF, stated the stablecoin is 116% over-collateralized. However, transparency around the reserves remains limited. Most collateral appears to be held off-chain, and the specific assets backing the stablecoin have not been disclosed.
Community Concerns Around USDF
Thanks to its partnership with DWF Labs, Falcon Finance’s USDF stablecoin had a strong start, reaching a $570 million market cap less than four months after launch.
However, its recent depeg has drawn considerable community scrutiny. For most of an hour, the USDF completely lost parity with the dollar, falling as low as 94.3 cents per token.
A closer look at the project’s financials has raised even more questions. Falcon Futures and DWF Labs both made statements about the stablecoin, claiming that it has 116% over-collateralization.
However, Falcon’s own data shows that more than $609 million of this is stored off-chain, compared to a measly $25 million in on-chain reserves.
Moreover, these reserves suffer from a dire lack of transparency. Falcon’s own audits don’t discuss the names, liquidity, volatility, or possible price impact of liquidation for any of the reserve’s tokens.
DWF Labs claims that it will publish a proper breakdown of the stablecoin’s reserves next week, but it’s a total black box right now.
Future Causes for Concern
LlamaRisk, a DeFi risk assessor, detailed in a forum post how dangerous this lack of transparency can be. It’s unclear why exactly USDF lost its peg, but the lack of clarity is itself a problem.
Even if other stablecoins make up a huge chunk of Falcon’s reserves, there’s no guarantee that these assets are credible. Any of them could’ve caused the depeg.
“The Falcon team has unilateral authority over the operational management of the reserve assets. Insolvency may occur due to operational mismanagement or failure of underlying strategies which include exposure to CEX exchanges and DeFi strategies. As with analogous products, Falcon relies on off-exchange custodians to mitigate losses,” it claimed.
This depeg attracted harsh community criticism. It may make future stablecoin launches more difficult, and it reflects poorly on DWF Labs. Furthermore, DWF has become a recurring partner in President Trump’s crypto empire in the last few months.
The UAE-based company has faced scandal after scandal in recent years, including accusations of wash trading and one of its previous partners drugging a job applicant.
Now, DWF Labs is partnering with Trump to provide liquidity for World Liberty Financial’s USD1 stablecoin, while the President aims to make such assets part of global dollar dominance.
With such ambitious goals, an incident like this seems very concerning. What if another DWF project experiences a glitch like this while stablecoins are more integrated with TradFi? What would such an incident do to market confidence?
These are just some of the current concerns. However, in a retrospective, the GENIUS Act will bring strong clarity over the reserve assets of US-based stablecoins. So, FUD-driven depegs might become less likely under such regulatory protection.
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