- DeFi project QiDao has voted to destroy $668,000 in its treasury to clear out bad debt in its system.
- The move is one step in its move to stabilize it's dollar-pegged stablecoin.
- It first accured this bad debt as fall out of last year's Multichain incident, which left many DeFi projects in the lurch.
DeFi stablecoin protocol QiDao has finally settled its outstanding $668,000 in bad debt on Polygon — and cleared a path to stabilize its dollar-pegged cryptocurrency.
That sum was fallout from last year’s Multichain incident that affected a portion of the collateral backing the project’s MAI shaky stablecoin, currently trading at $0.88 per CoinGecko.
Last month, QiDao’s community voted to burn assets from its treasury that holds over $7 million crypto to cover that bad debt burden.
Bad debt refers to when a loan position cannot be redeemed because the value of the collateral used to secure the loan loses value, leaving the borrower with insufficient funds to repay the loan.
The protocol’s loan book on Polygon now shows $20.2 million in collateral backing $5.1 million in MAI-denominated loans on Polygon — a collateralisation ratio of approximately four-to-one.
Before fully resuming normal operations, however, the project still wants to adopt new rules to prevent any future roadblocks.
“Before MAI can be connected again — meaning people can mint and bridge between chains — a new standard is going to be created for all stables to follow, which will allow the protocol to better protect each chain from each other,” QiDao core team member Benjamin told DL News.
Multichain hack fallout
MAI is QiDao’s crosschain stablecoin. Users can mint MAI on 11 supported blockchains in exchange for crypto collateral like wrapped Bitcoin and wrapped Ether.
The MAI vaults on these supported blockchains, including Polygon, Optimism, Ethereum, and Base, are supposed to be 100% backed by collateral assets.
However, last year’s Multichain hack, where $125 million was removed from Fantom’s largest bridge protocol, upended this balance.
Assets on Fantom used to mint MAI lost their value amid the bridge turmoil. Their underlying collateral did not adequately back these MAI tokens.
The MAI backed by the devalued collateral deposited on Fantom had also been ported to other blockchains. These MAI tokens constituted excess supply on these chains that weren’t backed by adequate collateral — that means bad debt.
This caused the stablecoin to fall as low as $0.70 after the Multichain incident, and it has failed to regain its $1 peg since then.
With the bad debt now cleared, the team says MAI is on the road to recovery. They also said the protocol may adjust fees levied on MAI borrowing until the stablecoin finds equilibrium with the market.
“MAI should repeg soon on Polygon once the news is spread,” Benjamin said.
Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.
