Iron Finance was a partially-collateralized stablecoin on Polygon. IRON was backed 75% by USDC and 25% by TITAN. Mark Cuban publicly backed the project. Prominent investors poured money in. TITAN reached $64 per coin. Iron Finance hit a $2B TVL.
In June 2021, large TITAN holders began selling to take profits. The price dropped. This triggered redemptions: IRON holders saw the peg weakening and rushed to redeem IRON for USDC. The protocol had to mint more TITAN. More TITAN minting caused the price to drop further, triggering more IRON redemptions. This is a bank run with no way to stop it. TITAN crashed from $64 to $0.000000035 in under 24 hours. $2B in TVL evaporated.
Partial collateralization with volatile tokens does not work. Bank runs are impossible to stop once they start. DeFi is more vulnerable to bank runs than traditional banking. The involvement of celebrity investors does not guarantee safety. Learn about <a href="https://www.web3farmyard.com/blog/how-to-identify-scam-projects-in-crypto/">identifying scam projects</a> to understand these risks.