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EP 56 IRON Finance
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TLDR below. This is not financial advice.
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Iron Finance is an Algorithmic Stablecoin project using the model of Frax Finance, including 2 main tokens, $IRON (stablecoin) and $TITAN (Governance token).
Before the bank rune, Iron Finance is now the most prominent project on the Polygon ecosystem with a TVL of nearly $2 Billion, before that Iron Finance was also developing products on BSC but Polygon is the main market of the project.
On Polygon, the project had achieved great achievements, only in the first half of June:
TVL increased to $2 Billion.
$TITAN increased by almost $50, from $1.33 to a peak of $64.19.
It is now worthless.
Iron Finance Explained
$IRON is a partially collateralised mechanism so it uses $USDC and $TITAN which is the secondary token created within the system. Every $IRON is valued at one dollar. It could be like 70% $USDC and 30% backed by the value of $TITAN.
$TITAN helps to support the price of $IRON and this 70-30 split is calculated based on an effective collateral ratio and is recalculated based on demand and supply. The end goal of this entire mechanism is to figure out the monetary policy to support $IRON as a stablecoin.
IRON VS FRAX
We want discuss about $FRAX because we did a big report on stablecoins together with Lemniscap and Bocconi university where we analysed eight different algo stablecoins.
$FRAX was the main protocol that created this design, then $IRON came along which was basically a copy of that but was built on a different chain. They built it on BSC and the Polygon network.
If They Are The Same Then Why Did $FRAX Succeed Whereas IRON Failed?
The similarity is that both $FRAX and $IRON use partial collateral or partial reserve and both have the same reserve which is $USDC.
The key difference is that with $FRAX the base mechanism is the same but it moved on to create version 2 and updated the system to make it more robust and efficient, which $IRON did not do. They stayed on V1.
Great concept, great idea, but poor design.
That is where everything started to fail.
What Else Did You Miss?
Causes of Failure
1. Uncontrolled supply
2. IRON & TITAN relationship
3. TITAN Mechanism Design
2 Tokens = 2 Economics Designs
Secondary Market Information To Primary
Formula ≠ Good Design
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Iron Finance is a project using Frax's Stablecoin model and Pancake Finance's tokenomics, the project successfully attracted a large number of initial participants, but quickly failed to maintain the number of users. there.
To summarise the operating model of Iron Finance, we have some main ideas as follows:
Iron Finance uses Frax Finance's algo stablecoin model.
Farms are Iron Finance's most attractive product, by sharply increasing Incentives input, the project has successfully attracted users and accelerated the project's flywheel.
Incentives help Iron Finance develop very quickly, but also harms it also pushes the project to a deep cliff.