The Falcon USD stablecoin suffered a depegging event yesterday, with its price briefly falling below 98 cents before recovering to around 99.5 cents. The digital currency, which has approximately $540 million in issuance, is backed by a variety of cryptocurrencies, including bitcoin and altcoins.
Investors grew wary of the backing assets’ quality, particularly the inclusion of altcoins, which can be thinly traded and difficult to value due to their comparative illiquidity. Using altcoins as stablecoin collateral is unusual since strong stablecoins typically rely on high quality liquid assets, while altcoins represent the opposite. A recent review highlighted the elevated risks of Falcon stablecoins compared to average stablecoins, noting an unusual seven day pause before redemption.
The report overlooked Falcon’s association with DWF Labs, a controversial market maker that regularly invests in altcoins. Last year, the Wall Street Journal alleged that DWF Labs created artificial trading volume to show a “believable trading pattern” and generate “bullish sentiment,” though the firm denied these allegations.
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