DeFi lender ended up with $35 million bad debt after quoting stablecoins depegged to $1

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Scream, a DeFi lending protocol on Fantom, incurred $35 million in bad debt after failing to adjust the price of two stablecoins that lost their peg to the US dollar.

The two stablecoins in question are Fantom USD (fUSD) and Dei (DEI). Both coins still have a listed price of S1, according to data from Scream’s dashboard. Yet they are trading well below the peg. fUSD fell to $0.69 while DEI fell to $0.52 at its low.

Whales took advantage of this situation to deposit large amounts of FUSD and DEI at a reduced rate and drained all other stablecoins from the Scream platform. Stablecoins like Fantom USDT, FRAX, DAI, MIM, and USDC have all been hijacked from the platform.

As such, users with supposed deposits of these stablecoins are unable to process withdrawals from Scream.

The situation with fUSD has also been further exacerbated by the fact that the stablecoin’s deposit limit has been set to infinity instead of zero. Coupled with the disintegration of the FUSD, this situation allowed users to borrow large sums of money against the bad debt and deplete the protocol’s remaining stablecoins.

The DeFi lending protocol also lost around 50% of the total value locked in its smart contracts, according to DeFiLlama.

Scream responded to the issue with a announcement stating that he was seeking a solution to the bad debt in conjunction with the Fantom Foundation. This workaround will involve liquidating all currently underwater fUSD loans.

With fUSD depegged, Scream says it will hardcode the price of the stablecoin to $0.81. This solution could also liquidate other users whose positions were not previously at risk of liquidation.

Deus Finance DAO, meanwhile, offered sales of treasury bills to restore the stability of the peg to DEI. According to the proposal, the platform will serve treasury bills to users in exchange for collateral in the form of USDC, DAI, and FRAX.

DEI and FUSD are the latest stablecoins to lose their peg to the US dollar. TerraUSD (UST) started the trend last week with a dramatic drop that led to Luna (LUNA) collapsing.

© 2022 The Block Crypto, Inc. All rights reserved. This article is provided for informational purposes only. It is not offered or intended for use as legal, tax, investment, financial or other advice.

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