DWF Labs’ USDf Stablecoin Briefly Depegs amid Doubts over Collateral and Yield

DWF Labs’ synthetic stablecoin Falcon USD (USDf) lost its peg to the U.S. dollar earlier this week, dropping in a moment to as low as $0.8871 early on July 8, per data from DEX Screener, amid mounting concerns about how well its collateral and risk models hold up under pressure.

At press time today, July 10, the stablecoin has yet to fully recover its peg, trading just below $1 at $0.998.

Data from blockchain analytics platform Parsec show that liquidity providers pulled more than $2 million from the Uniswap USDT/USDf pool in a short span on July 8, after the depeg.

DWF Labs is a market maker and investment firm, as well as the primary backer of Falcon Finance, which launched its stablecoin in April.

The price drop came amidconcerns about the stablecoin’s backing and the lack of clarity around how its yields are calculated. Falcon has continues to advertise returns as high as 15% APY, while rates on more established lending platforms like Aave are currently much lower, closer to 3-4%.

Unlike many USD stablecoins that are backed one-to-one by cash or U.S. Treasury bills, USDf is an overcollateralized synthetic stablecoin with a mix of eligible crypto that users can deposit as collateral to mint USDf. Supported assets for deposit include USDC, USDT, BTC and ETH — along with some lower-liquidity altcoins, a structure that has already drawn scrutiny from some market watchers.

Just about 30 minutes prior to the depeg event, DWF Labs CEO Andrei Grachev published an X article outlining Falcon’s reserves and strategy. He wrote that USDf is 116% overcollateralized, with about 89% of reserves held in BTC and stablecoins and the rest in altcoins. He added that the protocol earns revenue through basis trading, arbitrage, staking, and OTC deals.

Depeg Impact

In the same X thread, Grachev acknowledged concerns about transparency and said an updated dashboard with a clearer breakdown of reserves — including altcoin holdings — would be published next week.

While the post gives a general sense of how Falcon generates yield, it still leaves a lot of open questions. There’s no detailed breakdown showing how much each strategy contributes, how sustainable they really are, or what kind of risk is involved. It’s also unclear if any of the returns are being boosted by leverage, outside capital, or incentive programs.

DeFi risk research firm LlamaRisk flagged potential concerns in a May forum post, citing limited disclosure, centralized control over assets, and the ability to mint USDf using low-cap tokens like DOLO. At one point, Falcon even allowed up to $50 million in USDf to be minted against DOLO, which had a market cap of just $14.2 million, according to the post and CoinGecko data.

The Defiant reached out to the DWF Labs team for comment on the depeg incident and community concerns, but hasn’t heard back by press time.

Gitay Shafran, founder of The Fedz, a stablecoin startup, told The Defiant that once a token loses its peg, the consequences can be immediate and severe. “A stablecoin’s entire value hinges on that $1 peg; once it cracks, liquidations cascade, users panic, and the core utility collapses,” he said.

Shafran added that while high yields aren’t inherently scams, they do require “radical transparency: where the yield comes from, how it’s collateralized, and how it holds up their liquidity under stress.”

In his view, high yields can be justified if risks are clearly disclosed and users understand how the returns are generated. “The problem arises when opacity replaces transparency, leaving users in the dark about real backing and exposure,” he said.

Tzahi Kanza, CEO of crypto venture studio Syndika, said depegging often occurs when users suspect the collateral backing a stablecoin is insufficient, or when they simply can’t see enough data to prove otherwise.

“The bigger issue arises when there’s a lack of transparent data, leading to panic driven by speculation or rumors,” Kanza told The Defiant. He noted that small deviations from the peg aren’t uncommon, pointing out that even USDC briefly fell 10% below its peg during the collapse of Silicon Valley Bank in 2023.

Per Kanza, the solution lies in clearer rules and regular reporting. “Such regulations are already being implemented in the EU and the US, and this case clearly highlights why they are necessary,” he said.

In April, DeFi protocol Synthetix’s sUSD stablecoin experienced a depeg to as low as $0.66 and has yet to fully recover, currently near $0.917, per CoinGecko.