Stablegains is facing a lawsuit after losing $44 million of users’ funds to UST
The app makes a 15%/year profit on stablecoins, Stablegains is currently facing a class-action lawsuit after the company lost more than $44 million in customer funds when investing in stablecoins UST failed.
These guys are in deep trouble – they lost about $42m in funds from 4,878 customers and probably have no way to pay it back (they’re a small startup) because they went all in on Anchor’s invincibility. Conviction bets are great, but not when toying with people’s savings. (2/2) pic.twitter.com/p9S5uFILoF
— FatMan (@FatManTerra) May 19, 2022
A company lost $44 million because of investment in UST
Stablegains took customer funds, transferred them to UST, and deposited them in Anchor Protocol, a Terra-based lending DeFi platform at 18%/year interest on UST deposits before the stablecoin lost its peg and crashed Terra ecosystem. The law firm behind the class-action lawsuit, Erickson Kramer Osbourne, sent a letter to Stablegains on May 14, demanding the release of client account records, the company’s marketing and promotional materials, and media records regarding the UST stablecoin.
At the time of the letter, it was unclear how much of an impact Stablegains would have on UST, but the project’s co-founder, Kamil Ryszkowski, officially disclosed the full company’s losses since investing in UST. While the only way Stablegains can reap such compelling returns amid the current market downturn that stretches into early 2022 is by using Anchor, the document, which has since been removed from the company’s website, has a positive effect.
Specifically, Stablegains has stated that the way to reduce risk when attracting customers to invest is to use USDC as the main means of generating profits, with a smaller allocation to UST and DAI for diversification. However, in an update on the UST situation on May 17, the company transferred all user funds in the UST without any notice. The company even promotes itself as a simple and secure solution for users to benefit from advances in financial technology. They are overconfident in assuring users that the value of their deposited assets will remain stable regardless of market conditions.
Ryszkowski claims his company holds a total of 47,611,058 USTs from 4,878 depositors. With UST’s current market value of $0.07, Stablegains appears to have lost over $44 million in client funds. As a result, many customers who deposit with Stablegains have claimed they were misled about the risks involved the company was doing with their funds. Aside from misleading asset allocations and deceptive ads, Stablegains also tries to convince customers to sign off on the right to sue the company.
After a tumultuous week on the part of users, Stablegains has announced that they will start allowing UST and USDC withdrawals again. However, USDC will only be swapped at the market value of the UST (which is hovering around $0.07), accompanied by a rather irresponsible note with the following content: “Under no circumstances shall Stablegains be liable to losses due to the exchange rate of UST to USDC at the time of processing your USDC withdrawal request.”
With the above in place, Stablegains effectively holds users’ funds until they agree not to sue the company. Will the pending class action against Stablegains proceed? Stay tuned for more shortly; we will update you as soon as we have the latest developments.
The evidence of deceptive advertising and misleading deposit information is clear. The company’s attempt to trick users into not filing a lawsuit may also indicate that Stablegains is deeply concerned about the law and is making a last-ditch effort to prevent this.
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