“Bank Run” Ruins Titan DeFi

The Intelligent Insurer #22 - Decentralized Finance (DeFi) experiences a new kind of threat that brings Titan protocol to its knees

A recent high-profile price crash in the DeFi world generated considerable controversy due to a couple factors surrounding the event. Firstly, a prominent personality in the crypto and business world was included among the crash. Second, the nature of the crash sparked divisive opinions.

Among the victims of the Titan crash was American billionaire and influential investor Mark Cuban. While many people thought that the Titan crash was the result of a “Rug Pull”, the team behind the project returned to clarify otherwise. They explained that the incident was a result of a process described as a “Bank Run”.

In the latest Intelligent Insurer, we detail the events surrounding the crash of the DeFi project, Titan, highlighting the explanation from the project team and reactions from the crypto community. We also outline the key risks associated with investing in DeFi and cryptocurrencies generally, while presenting strategies to protect against such risks.

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A new kind of threat for cryptocurrency investors

The Titan DeFi token crashed from $60 to $0 within one day. Legendary investor Mark Cuban admitted to being among the victims of the project failure. In a tweet, Cuban noted that at some point in the process of the crash, he got out of the trade. He further noted that only a small percentage of his crypto portfolio was involved in the crash but he was nonetheless unhappy with the outcome. 

(Source: Cryptopotato.com)

The initial impression across the DeFi and cryptocurrency industry was that the team behind the Titan project had carried out a “rug pull” on stakeholders and investors. Infamous rug pulls have become almost commonplace recently, with countless untested early DeFi  projects being subject to such events.

However, Iron Finance, the company behind Titan, offered an alternative explanation. In a blog post, Iron Finance claimed that the incident was the world’s first large-scale crypto “bank run”.

The bank run involved a series of transactions that were systematically executed by some whales on the platform. The whales exploited loopholes in the platform’s code which allowed them to pull out liquidity. This caused panic within the ecosystem and the protocol experienced a massive sell-off, bringing the price of the native token to near-zero. 

Keeping up with a dynamic system

While the legitimacy of the proposed “bank run” remains to be put under scrutiny, it is undeniable that DeFi investors are subject to diverse and eclectic risks. Such are the challenges of a novel industry. Threats continue to show up in different shapes and sizes as the industry moves towards maturity. Most of the threats come in the form of technology risk, asset risk, or product risk. However, there are options for cryptocurrency users to take measures to protect themselves against downside risk.

Industry-focused insurance solutions like Insured Finance allow users to protect against the specific risks present in the growing DeFi and cryptocurrency industries. The platform provides a two-sided marketplace where users can secure tailored protection against the plethora of risks that are present in the industry.

If the Titan crash was legitimately the first ever crypto bank run, this a new kind of risk that has never been experienced in the cryptocurrency world. Other kinds of new risks will continue to emerge and it will always be the digital asset holders who need to take measures to minimize their downside risk. 

About Insured Finance

Insured Finance is a decentralized, peer-to-peer insurance marketplace. Insured Finance users can request customized insurance on a wide variety of digital assets. Those that fulfill requests earn premiums and can earn a competitive return on their capital. Claims are fully collateralized and settled instantly.