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In the latest decentralized finance (DeFi) space project disaster, ICHI listed its name where it lost almost 99% of its value
The price of a native token of a DeFi Protocol Ichi has collapsed suddenly, resulting in the loss of its value. The loss was so huge that it could be understood by the height it dropped from; the price earlier the crash was $143, which later dropped to its low of around $1.7. Before a bit rebound, this is a significant loss in value, of around 99%.
Several commentators started labeling it as another rug pull as the news came out. They claimed that insiders of the project possibly sold out a large portion of ICHI tokens that they had in their liquidity pools, which led to collapsing the token price. However, after some time, the rumour started fading up and eventually, it came to know what happened with the project.
In reality, it was a major glitch made by the team, where a problematic change first created a sudden and huge rise in the price of ICHI tokens, which later followed a large crash immediately.
Ichi deFi protocol operated lending markets and liquidity pools for its stablecoin oneTokens while using Uniswap as its base protocol under its Angel Vault offering. Along with this, the protocol manages a lending market which Fuse protocol of Rari Capitals, which is called token vault #136.
Now, this #136 token vault provides a facility to depositors to supply different assets to earn a yield and then borrowers can borrow those assets in exchange for some fee. The pools used to pay rewards in its governance token called ICHI, which follows the features of most cryptocurrencies like volatility, etc.
The actual error happened at #136 Fuse vault of Rari Capital when the team of Ichi protocol decided to increase the limit of loan-to-value for lending assets in the vault to 85%.
The collateral factor or LTV limit determines how much borrowing on their collateral a user can do from a legend protocol. If any project has a low LTV limit is considered to be much safer as if the collateral value drops, the loan is unlikely or less likely to get liquidated. On the other hand, a higher LTV limit leads to higher risks.
Liquidation stands for the situation where the lending protocol automatically sells off the collateral to recover the loan value. For the specific Ighi vault, liquidations are triggered whenever the collateral value falls by 15%, and eventually, the loan would go on the edge of liquidation.
Such a step made people think of it as a golden opportunity, and they started following it insanely. Growth lead at Aztech Protocol, Jonathan Wu, said in his Twitter post that the ICHI denominated collateral in the vault sunk in value with the crash of token that made most loans liquidate. Continuous selling off of the assets led to the liquidation.
The problem was in the core idea where people could deposit 10,000 ICHI tokens that would cost them about $1 million when the price was $100 per token. And consequently, they can borrow 85,000 USDC stablecoin and take another loan. People repeated the process again and again hastily. Buying tokens made the prices go up, but eventually, liquidation started when it reached a certain limit, and it damaged the whole protocol badly.
A lot of people presented their views and thoughts regarding the incident. Among them most considered one is given by the Ichi team apologizing on their telegram channels for what happened and taking action by lowering the limit of LTV to 50%.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
