USDf Stablecoin Depegs 0.5% Despite 117% Collateral Claims

The USDf stablecoin, backed by DWF Labs, experienced a depeg event on July 8, falling below $0.995 despite claims of being 117% collateralized. This event raises significant questions about the stability and transparency of the stablecoin.

Most of USDf’s reserves, approximately 96%, are held off-chain with third-party companies, making it difficult to verify the composition of these reserves. Only 4% of the reserves are visible on-chain, and there is no detailed breakdown of what makes up the off-chain reserves. This lack of transparency is concerning, especially since the stablecoin can be minted using volatile tokens like DOLO, which has a total market value of only $14.2 million. The ability to mint up to $50 million USDf using DOLO highlights the risk of bad backing and contributes to the depeg event.

Experts are drawing parallels between USDf and sUSDe, another stablecoin that lost its peg earlier this year. Both projects rely on complex strategies involving centralized exchanges and liquidity pools to earn yield while maintaining stability. However, these setups are difficult to track, and there is no easy way to verify the safety of the reserves. DWF Labs and Falcon Finance have mentioned having an insurance fund and arbitrage systems, but these tools are not openly accessible, making it hard to trust the stability of USDf.

The USDf stablecoin is already integrated into Curve’s LlamaLend lending markets and is undergoing a vote to receive CRV token rewards. If the stablecoin depeg occurs again or if trust in it falls, other DeFi applications may also be affected. The 7-day redemption delay for some users further complicates the situation, making it harder for traders to correct the price when it starts to drop.

This depeg event underscores the importance of transparency and the risks associated with off-chain reserves and high-risk minting strategies. Simple claims of being 117% backed are not sufficient to ensure stability. DWF Labs needs to provide more transparency about the composition and management of USDf’s reserves to regain user trust. Until then, the risk of another depeg remains high, and the market’s recovery may not be as swift in the future.