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Did Stablegains lose $ 42 million of user funds in UST?


coinnounce.com 19 May 2022 17:53, UTC
Reading time: ~3 m

A Twitter user FatmanTerra has revealed that a DeFi firm promised its users in its terms that they would invest their money in stablecoins like USDC (USD Coin) and UST (TerraUSD). But instead of investing equally, it invested all the money in UST. FatmanTerra presented two images: 1. the wordings of the terms page from 10 months ago and 2: the latest terms of page.

Yikes. @stablegains took USDC and USD via wire from customers promising them 15%, put it all into Anchor without telling them, and skimmed 4% off the top. They have now changed the denominations in their app from USD to UST and are nuking the landing page & old terms. (1/2) pic.twitter.com/D6sVOI2bRG

— FatMan (@FatManTerra) May 19, 2022

What are stablecoins, and how do they work?

USD Coin is a stablecoin where every $ 1 USDC token is backed up by collateral in fiat money (US dollar). Whereas, TerraUSD is an algorithmic stablecoin, where the collateral is another cryptocurrency. An algorithm manages the peg to the US dollar. 

In the case of USDC, whenever there is a deviation from the 1 USDC not equal to $ 1, the backup collateral is sold, and the parity is restored. While in TerraUSD, the peg is managed by computer algorithms by selling the crypto LUNA to manage the peg. 

On May 9th, the UST lost its peg to the US dollar, and the algorithm could not maintain the peg. As a result, the coin lost its value, tumbling as low as 5 cents. This, in turn, made all the investments of users almost worthless. 

False promises of the firm?

The firm promised its investors of 15 % gains on the investment. Its terms of conditions depicted that it would invest in USDC and UST. But, it invested all the money in Anchor protocols UST. They didn’t tell their investors about their major investment being in UST alone. 

After the collapse of UST, the firm significantly changed the words of the landing page and the app to UST. If one looks at their website, they have also changed all the wordings to show that Users’ funds are stored in UST and not USDC as per previous communication! This is what their site states now:

“To recap: when users deposit funds with Stablegains funds are converted to UST and deposited with the Anchor protocol where they earn a yield. All users’ holdings are in UST. On Monday (May 9th), the UST stablecoin rate lost its peg to the US dollar and has been trading significantly below $1 since then. All users’ balances in Stablegains are therefore affected.”

“While the current situation is extreme and unprecedented, the risk of a stablecoin depeg has always been there. It’s something all users have signed up for. We’ve also signed up for it at Stablegains: we hold our revenues in Anchor and the team has personal investments in Anchor and Luna too. It’s unclear but highly unlikely that the UST rate will return to its peg. “

Stablegains is a small firm and will most likely not be able to return any of the funds to the investors. This point to another important pitch of new DeFi apps like Stablegains, promising guaranteed high returns(15 % to 20 % sometimes), which attracts gullible investors to get attracted to them. Mostly these investors are normal people investing their hard-earned money in the lure of high returns. 

The need of the hour is to have some regulation to overlook firms like Stablegain, which keep people in illusion and change the wordings of their pitch after a downfall. U.S. Securities and Exchange Commission has a role to play in safeguarding small investors.


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