Stablegains Under Fire After Going All-In On Anchor

StablegainsREKT

The pitch was simple.

“Earn a stable 15% APY interest with our simple savings account,” reads a blog post detailing Stablegains’ launch in six U.S. states last August. “No hidden fees, no minimum balances, no commitment periods.”

People and businesses used to the meager interest rates offered by traditional savings accounts might have wondered how this was possible.

The answer, of course, was DeFi, which Stablegains explained as “a more efficient way to manage the lending market which means a bigger share of the yield goes to the depositor.”

Stablegains customers are now alleging they were scammed – misled by marketing that suggested the company was better diversified, when in fact, it had deployed all investor funds in Anchor Protocol, the now-infamous savings app on Terra..

As the UST stablecoin collapsed last week, Stablegains said its 4,878 customers would likely lose most of the $47 million they had entrusted to the company.

UST, a so-called algorithmic stablecoin designed to always trade at a 1:1 exchange rate with the U.S. dollar, lost its peg last week and is currently trading at eight cents on the dollar..

“All users’ holdings are in UST,” the company clarified in a webpage recently added to its website. It goes on to say that “it’s unclear but highly unlikely that the UST rate will return to its peg.”

Customers have alleged the company did not make it clear that all their money would be converted to UST. In a Twitter thread and in an email to The Defiant, the company pushed back strongly against these allegations.

‘Not a reasonable interpretation’

Founded by Ryszkowski and Emil Dalgård Rasmussen, Stablegains, backed by Y Combinator and a suite of angel investors, quickly expanded into another 14 states after its August 2021 debut.

In a blog post published shortly after its launch, Stablegains detailed the source of its 15% yield.

The company deposits customers’ money in Anchor Protocol, the decentralized lending market on the Terra blockchain.

“The deposit (in Anchor) and interest earned are all made in UST,” Stablegains wrote in the Aug. 2021 blog post. Anchor’s deposit interest rate, it continued, usually oscillates between 18% and 20%. Stablegains pays its customers 15% and pockets the difference for handling “the technicalities of accessing Anchor on [users’] behalf” and covering transaction fees incurred when accessing Anchor.

The blog post linked to webpages that detailed the risks posed by stablecoins and DeFi protocols and how Stablegains mitigated those risks.

Stablegains’ customers pointed out on Twitter this week that one of those webpages has since been changed — that the company’s guarantees were, in fact, lies.

According to a screenshot shared by Twitter user FatManTerra, Stablegains’ “Stablecoin risks + how we mitigate them” webpage originally said “The main stablecoin we use is USDC (USD Coin). The other stablecoins we also use are UST (Terra USD) and DAI.”

It also stated, “We allocate funds across a number of stablecoins to not be fully exposed to the potential instability of one stablecoin. If a withdrawal is requested and one of the stablecoins we use is not at its peg, we can still use other stablecoins to send you your funds without delay.”

As of May 19, that webpage said “The main stablecoins we use are USDC (USD Coin) and UST (Terra USD).” There was no reference to mitigating risk by diversifying across a number of stablecoins.

In an email to The Defiant, Rasmussen explained the changes that were made to the webpage. 

“It was clear we needed to update the article as it was relevant to normal times and did not address the current extreme situation – our Terms of Use did,” he wrote. “The updates we made served only to provide clarification to users.”

Rasmussen said the company made clear customers’ money was held solely in UST. But he acknowledged why they might have thought otherwise. 

Asked about the sentence that originally said “The main stablecoin we use is USDC,” Rasmussen explained that “the reason we said that was: for a while, we only processed deposits and withdrawals in USDC (not fiat), so this was the stablecoin users had to always deal with.”

Later, Stablegains made it possible for customers to transact in fiat via wire transfers and ACH. 

“Our partner Circle facilitated the fiat payments and provided us with the equivalent amount of USDC, so on a daily basis this still was the stablecoin that was involved in all transactions,” Rasmussen continued. “Thereafter, usually on a daily basis we would convert the pooled deposits into UST and place that in Anchor, as per our Terms of Use.”

Regarding Stablegains’ past claim it “allocate[s] funds across a number of stablecoins,” Rasmussen said it could be misleading. 

“Taken out of context, that paragraph can make it seem like we have a 1:1 reserve for all stablecoins and/or diversify across DeFi protocols,” he wrote. “This is of course not a reasonable interpretation, given that as we’ve made clear Anchor/UST was the only protocol and stablecoin used when users were earning yield.”

‘Sue the shit out of them’

Stablegains took to Twitter Thursday to make a similar case: it should have been clear to anyone who read the company’s terms of service that customers’ deposits were held in UST. But angry users continued to insist they were conned. 

“No where on your site did you say you were 100pct moving money to UST,” said mikebotte. “Your site says USDC – I have. The screenshots.”

User UromIversoN echoed the sentiment.

“Nowhere y’all said our money was going to be converted into UST,” he tweeted. “My account balance was always in USD & y’all said our balances could be withdrawn at anytime. Now you guys wanna take advantage of the depeg of UST to rob people of their hard earned money.”

Twitter user AlgodTrading, a self-described “semi-retired degen” who bet $1M on Terra failing, said simply: “Sue the shit out of them.” That may indeed happen.

San Francisco-based law firm Erickson, Kramer & Osborne has sent Stablegains a letter demanding it retain internal communications, as well as records relating to the company’s advertising and customer accounts for a potential lawsuit. 

Attorney Kevin Osborne declined to comment on any potential litigation, but said his firm has been contacted by “a large number” of aggrieved Stablegains customers since the depeg of UST. 

“It’s been a few days of almost nonstop … calling,” he told The Defiant.  

Stablegains customers have likely flocked to his firm, Osborne said, because it filed a lawsuit in federal court last week against Coinbase and GMO Trust, the creator of a stablecoin pegged to the Japanese Yen, alleging false advertising.

It’s likely that Stablegains wasn’t the only project playing this game. Anchor’s ‘fixed’ 20% yield attracted nearly $14B in deposits at its peak on May 4, and more collateral damage may come to light in the coming days.

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