🔎 An in-depth look at Falcon Finance: USDf de-pegging and its implications for synthetic stablecoins On July 8, 2025, USDf, a synthetic stablecoin launched by @DWFLabs-backed @FalconStable, experienced a severe de-pegging event. USDf, which was originally pegged to $1, fell to a minimum of $0.879 on some platforms, causing widespread panic and questions in the crypto community. Falcon Finance, a next-generation synthetic dollar protocol designed to create sustainable yield opportunities, has launched a new stablecoin, USDf. USDf differs from traditional fiat-backed stablecoins (e.g., USDT, USDC) in that it is an over-collateralized synthetic dollar. Users mint USDf by staking eligible assets, including stablecoins such as USDT and USDC, as well as BTC, ETH, and some altcoins. Its overcollateralization mechanism is designed to ensure that the total value of collateral assets is always higher than the value of the issued USDf to maintain its stability in various market conditions. In addition, Falcon employs neutral strategies, such as basis trading and staking, to generate sustainable yield. Holders can also stake USDf to earn sUSDf, which is claimed to have an annualized yield (APY) of up to 22%. As of now, USDf has a market cap of between $540 million and $560 million, and is integrated into ecosystems such as @BitGo, @KaiaChain, @MorphoLabs, and @_WOO_X. However, the de-anchoring event also exposed its potential risks.

2/ Risks and Vulnerabilities of USDf 1. Bad Debts and Liquidity Issues Multiple X users have expressed concerns that USDf "may be backed by illiquid assets and has tens of millions of dollars in bad debts." According to @yieldsandmore, a recent report from Falcon Finance disclosed only $162.72 million in BTC and $87.58 million in mBTC (Bitcoin-related assets account for about 39.4% of total reserves), but did not detail the structure and transparency of the remaining assets. Some users suspect that DWF Labs is using USDf to "cash out" illiquid assets in its market-making business. In response, DWF Labs' Andrei Grachev stated that currently about 89% ($565 million) of the collateral is in stablecoins and Bitcoin, with only 11% ($67.5 million) in altcoins, all of which are hedged against risks. Although Falcon's official data shows a collateralization rate of 117%, as much as 96% of the assets are held off-chain, further intensifying external skepticism. 2. Liquidity and Peg Mechanism Part of the reason for USDf's decline is the extremely thin liquidity. Although its market cap is as high as $540 million, its liquidity pool is only $14 million. A flash crash has raised concerns about the structural fragility of the market. Subsequently, Falcon responded to the FUD, stating that its peg mechanism "relies on arbitrageurs to maintain it"; when the price is above $1, arbitrageurs will mint and sell USDf, and when it is below $1, they will buy back and redeem. Grachev also explained that this volatility stems from "changes in market dynamics" and promised to enhance liquidity. However, low liquidity can easily exacerbate severe market fluctuations, especially for synthetic stablecoins. Its peg mechanism relies on sufficient arbitrage participation, which can fail when market confidence is low. Although the price quickly rebounded to $0.9948, showing some resilience, liquidity remains its core weakness. 3. Reputation Issues of DWF Labs Several X users (such as @eldarcap, @Hodl_fm) have linked this decoupling to past controversial events involving DWF Labs, particularly allegations of market manipulation. Although there are claims in the community that "competitors are organized to launch a FUD offensive," the close relationship between Falcon and DWF Labs still makes many users feel that the risks cannot be ignored.

3/ Summary The decoupling event of USDf once again reveals the fragility of the synthetic stablecoin system. Although Falcon Finance provides a certain level of security through a high ratio of over-collateralization and a stablecoin-dominated asset portfolio, its reliance on off-chain assets, lack of transparency, and relationships with controversial institutions raise reasonable concerns. Following the collapse of TerraUSD in 2022 and the CRV liquidation event of Curve Finance in 2024, crypto users remain highly vigilant towards similar projects.

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