DWF Labs-backed USDf depegs as red flags raised over quality of backing

Falcon USD, the rapidly growing “synthetic dollar” backed by controversial market maker DWF Labs, is faltering just months after launch.
The $540 million market-cap USDf is “backed by diversified crypto assets,” but concerns over the quality of some of that collateral have led to worries about the first collapse of a major stablecoin since the implosion of Do Kwon’s UST.
USDf’s price has been off-peg during the course of the morning, hitting a low of $0.98, according to CoinMarketCap data.
Read more: Do Kwon’s lawyers say they’re ready — then ask for more time
Decentralized finance (DeFi) risk advisor LlamaRisk highlighted issues with USDf in a post to the Resupply governance forum, regarding its onboarding as collateral to the lending platform, which fell victim to a $9 million hack last month.
The post, published in May, highlights a lack of transparency and the questionable quality of assets that can be used as USDf backing, amongst other factors.
DWF Labs’ Managing Partner, Andrei Grachev, responded to renewed concerns with a post to X, explaining Falcon’s “reserves, transparency, and risk management strategies.”
Grachev states that, while USDf backing can include “any assets that can be hedged properly by perps,” 89% is made up of stablecoins and bitcoin (BTC), with approximately 11% backed by “altcoins.”
He also suggests that “some competitors” are running “coordinated FUD against us,” as they’re “not able to compete fairly.”

According to Falcon Finance’s so-called “Transparency Dashboard,” USDf is 117% collateralized by $635 million of crypto assets.
However, $610 million worth of these reserves are held off-chain and broken down into just two categories, namely “Stablecoins,” making up just 15%, and “Others,” making up the remainder.
On-chain assets total just $25 million of reserves.
In the latest reserve report, dated yesterday, assessor HT Digital states that the value of assets is “based on the quantity of collateral at the timestamp above, multiplied by pricing data obtained from CoinGecko at the end of previous day.”
It makes no mention of the liquidity, volatility, or estimated price impact in liquidating the backing assets.
HT Digital also states that it has “not performed any procedures over the control and ownership of the above assets, nor any procedures over whether any security has been placed on these assets.”
Replying to criticism on X, Grachev added that they have “learnt a lot today” and that the Dashboard will be updated to include itemization by stablecoins, BTC, and altcoins “by next week.”
DWF Labs
Despite being a relative newcomer to the crypto market making scene, DWF Labs has already seen its fair share of scandals.
Whether called out for lacking transparency, being suspected of pumping-and-dumping struggling crypto tokens, or accused of wash trading by a former Binance employee, DWF has never been far from controversy.
In October, the firm came under scrutiny when a partner was accused of attempting to drug a potential new hire in Hong Kong.
Read more: DWF Labs partner allegedly caught trying to drug job applicant
Some theorize that DWF may be using illiquid or low-cap tokens, with which they have market making arrangements, to mint USDf as a sneaky way of cashing out from their holdings.
A similar tactic, used by Curve Finance founder Michael Egorov, blew up last year in a spectacular liquidation cascade that saw the CRV token’s price plummet by 30%.
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