Decentralized finance (DeFi) protocol Wonderland saw its TIME token briefly drop below its treasury-backed value on Monday, prompting the team to buy back millions worth of TIME tokens to bolster the price.
Wonderland falls within a category of popular DeFi projects known as “Ohm forks,” experimental protocols with aims of creating an independent monetary system. Yesterday’s incident appears to be the first time an Ohm fork has stepped in with buybacks, perhaps the crypto version of central banks carrying out quantitative easing.
On Monday afternoon, the price of TIME plummeted 40% from $1,400 to $832 within a span of two hours before protocol leaders intervened to stabilize the token’s price.
As TIME breached the $1,000 threshold, the sell-off prompted the unwinding of overleveraged traders, which led to a liquidation cascade and further price decline.
The incident shows that volatile market movements can cause a treasury-backed token to fall below its intrinsic value. The phenomenon is akin to how an ETF or close-ended fund can trade below its net-asset value (NAV) in traditional financial markets.
In response to the price action, pseudonymous Wonderland protocol co-founder 0xSifu said the protocol purchased millions in TIME tokens to bring the price back in line with its treasury-backed value.
“It looks like we finally have an opportunity to test the buyback promise at Wonderland,” wrote 0xSifu on Twitter. “Several million has once again been used to buy below our backing price, returning the price to our intrinsic value.”
It looks like we finally have an opportunity to test the buyback promise @Wonderland_fi. Several million has once again been used to buy below our backing price, returning the price to our intrinsic value.
As a reminder: Unlike most others: Wonderland buys at the backing price. pic.twitter.com/jypJZesC5G
— 0xsifu (@0xSifu) January 18, 2022
As of Tuesday afternoon, the price of TIME rebounded to roughly $1,300 per token. However, the token remains down 65% year-to-date and down 91% from its all-time high of $14,185 last November.
Wonderland’s Sifu said in the project’s Discord channel that the team would “continue to buy above backing price to prevent cascade” and would “strive to improve our response time” if the price were to fall below the backed value in the future.
A decentralized monetary system?
Wonderland first launched in September 2021 as a fork of Olympus on the Avalanche network. Within the broader crypto community, participants in the Wonderland ecosystem affectionately refer to themselves as “frogs” or “frog nation.”
According to its white paper, Wonderland is a “decentralized reserve currency protocol that owns its own liquidity,” an idea that was first pioneered by the popular DeFi protocol Olympus.
The central idea of the project is to create a stablecoin that is not pegged to the U.S. dollar or any other fiat currency, which are subject to the decisions made by central banks. Instead, the value of the reserve currency would be backed by a pool of crypto assets held in the protocol’s treasury, similar to the notion of a gold-backed dollar.
As of Tuesday afternoon, the Wonderland treasury contained nearly $1 billion in non-TIME crypto assets.
The project has also ignited a fierce debate in the cryptocurrency community surrounding Olympus and its various forks – with one camp labeling the schemes as ponzis and the other lauding its goals of creating a truly decentralized monetary system.
Whether the projects will succeed in their stated goals remains to be seen.
In recent weeks, Olympus and its various forks have suffered steep sell-offs, with Olympus’s OHM token declining 65% year-to-date and KlimaDAO, another Ohm-fork, seeing its KLIMA token declining 72% year-to-date, according to data from CoinMarketCap.