Controversial crypto executive Andrei Grachev has promised more details regarding the $630 million basket of crypto assets backing USDf, a token that lost its peg to the US dollar on Monday.
USDf tokens are meant to hold a value of $1 but fell to $0.992 July 7. They were trading at $0.996 Wednesday evening New York time.
USDf is the world’s 15th-largest stablecoin, with a market value of about $550 million. It is issued by Falcon Finance, a subsidiary of crypto trading firm DWF Labs.
Falcon calls USDf a “synthetic dollar,” a term popularized last year by Ethena. The issuer of the dollar-pegged USDe token, Ethena abandoned the more common “stablecoin” label after criticism USDe’s novel design exposed users to greater risk than traditional stablecoins.
Unlike most dollar-pegged tokens, Ethena and Falcon Finance use crypto assets and profits from a complex trading strategy to maintain their tokens’ peg.
USDf is over-collateralized, according to Falcon’s website: the crypto backing the token is worth $630 million, but only 550 million USDf tokens are currently in circulation.
Nevertheless, critics on social media have questioned claims the token is fully backed.
In an apparent bid to quell the criticism, Grachev, DWF’s CEO, said he would share the exact composition of the crypto assets that back USDf next week.
Falcon holds about 89% of its reserves, or $565 million, in stablecoins and Bitcoin, Grachev stated Tuesday. The other 11%, or $67 million, is held in various other cryptocurrencies, he said.
“Basically we can accept any assets that can be hedged properly by perps,” Grachev said.
Of the $630 million in crypto backing USDf, only $25 million, or about 4%, is held onchain. The remaining $607 million is held offchain, split between four custodians: Binance, Fireblocks, Ceffu, and ChainUp.
This means that 96% of the reserve backing cannot be independently verified by anyone with an internet connection.
So-called “reserve reports” are published daily by London-based accounting firm Harris & Trotter. But they only show the dollar amount of assets held with each custodian.
Falcon does not share the makeup of the offchain reserve assets.
“Will update the transparency page next week,” Grachev said on X on Tuesday. “You will see a proper assets breakdown, lock BTC, stables , altcoins.”
Falcon has also said Harris & Trotter is preparing an “ISAE 3000 (highest audit grade),” though the International Auditing and Assurance Standards Board describes the ISAE as dealing with “assurance engagements other than audits or reviews of historical financial information.”
Falcon generates revenue through a variety of trading strategies including basis trading, arbitrage, and staking rewards, Grachev said. He also said that it uses only market neutral strategies, eliminating risks in the case of the market falling.
Grachev also noted that the peg is “maintained organically by traders, if the USDf price is above $1, traders mint and sell, if below $1, traders buy and redeem, carrying a risk free trade.”
Despite these claims, critics have blasted Falcon on social media. Among other things, they have shared their suspicion Falcon’s synthetic dollar is backed by highly illiquid assets that would plunge in value if Falcon were forced to sell them to USDf honour holders’ redemption requests.
Crypto risk management firm LlamaRisk said in a report published in May it had found issues with the design of USDf.
“The Falcon team has unilateral authority over the operational management of the reserve assets. Insolvency may occur due to operational mismanagement or failure of underlying strategies which include exposure to CEX exchanges and DeFi strategies,” LlamaRisk said.
USDf can be minted using a wide variety of alternative cryptocurrencies, the report said, many of which have limited supply, such as Dolomite, a project whose token had a market value of $16 million. The token could be used as collateral to mint up to 50 million USDf, according to LlamaRisk.
It’s not the first time one of Grachev’s firms has faced controversy.
DWF was accused of making over $300 million from wash trading by a former Binance insider. The firm also had to dismiss one of its partners after he was accused of drugging a woman.
