- Figure’s mortgage-backed token briefly collapsed 81%.
- It is not known exactly what caused this fall.
- Market data shows only low trading volumes.
A crypto token representing $13 billion in home equity loans experienced an 81% flash crash on Friday, raising questions about how such a violent price movement could occur.
The Figure Heloc token, issued by blockchain-based fintech Figure, typically trades around $1 due to its relationship with the company’s YLDS stablecoin.
Starting around 10 p.m. London time on October 24, the token began to fall, dropping to a low of $0.19 before recovering, according to Figure Markets price data reported by multiple vendors.
It is unclear what exactly caused this sudden crash, which temporarily saw the token lose over $10 billion of its market value.
Figure did not immediately respond to multiple requests for comment.
It’s a bad look for the company, which trades at a market capitalization of $8.5 billion after raising nearly $800 million in a U.S. IPO last month.
The incident with Figure’s token raises questions about the resilience of the company’s platform and the viability of issuing blockchain-based loans backed by real-world assets, where liquidity is low and code cannot enforce property rights.
The tokenization of real-world assets such as consumer loans and government debt has grown to an $18 billion market this year, according to data from DefiLlama.
Proponents argue that asset tokenization can lead to significant increases in speed and efficiency for the financial system. Ripple and Boston Consulting Group predict that tokenization will grow to a $19 trillion industry by 2033.
Liquidity issues
Figure uses the Provenance blockchain to originate and record various types of loans that it underwrites and issues.
The company’s most popular offering is its Home Equity Line of Credit, or HELOC, a type of loan taken out against the value of a home. Figure claims to have generated $13 billion in HELOCs.
The company claims that providing such loans on blockchains can reduce costs and increase liquidity and efficiency.
“By taking historically illiquid assets – such as loans – and putting those assets and their performance history on-chain, blockchain can bring liquidity to markets that have never had it,” Mike Cagney, co-founder and executive chairman of Figure, said in a September letter.
But market data shows that the liquidity of Figure’s lending token is unusually low.
Data from Figure Markets, an exchange and lending marketplace that merged with Figure in July, shows that just $1,516 in transactions took place for the $13 billion Figure Heloc token in the past 24 hours.
Low liquidity can lead to outsized price swings if traders place large orders to buy or sell a token. Assets of similar size typically support hundreds of millions of dollars in daily trading volume.
Others have criticized the lack of transparency surrounding Figure’s on-chain lending.
0xngmi, the pseudonymous manager of crypto data platform DefiLlama, said in September that the $13 billion in loans claimed to have been generated could not be verified.
“The vast majority of (sic) their loans are made in fiat currency, and we have barely found any on-chain payments,” he said.
Tim Craig is DL News’ DeFi correspondent based in Edinburgh. Contact us with advice at tim@dlnews.com.
