- Figure's home loan-backed token briefly crashed 81%.
- It's not clear what caused the drop.
- Market data shows only small amounts of trading.
A crypto token representing $13 billion worth of home equity loans experienced an 81% flash crash on Friday, raising questions over how such a violent price movement could occur.
The Figure Heloc token, issued by blockchain-based fintech Figure, usually trades around $1 because of its relationship with the firm’s YLDS stablecoin.
Starting at around 10pm London time on October 24, the token began to fall, dropping to a low of $0.19 before recovering, according to price data from Figure Markets reported by multiple providers.
It’s unclear what caused the sudden crash, which temporarily saw the token shed over $10 billion of its market value.
Figure did not immediately respond to multiple requests for comment.
It’s a bad look for the firm, which trades at an $8.5 billion market capitalisation after raising almost $800 million through a US initial public offering last month.
The incident with Figure’s token raises questions over the resilience of the firm’s platform, and the viability of issuing blockchain-based loans backed by real-world assets, where liquidity is low and code cannot enforce ownership rights.
The tokenisation of real-world assets like consumer loans and government debt has swelled into a $18 billion market this year, according to DefiLlama data.
Proponents argue that tokenising assets can yield big increases in speed and efficiency for the financial system. Ripple and Boston Consulting Group predict tokenisation will grow to a $19 trillion industry by 2033.
Liquidity issues
Figure uses the Provenance blockchain to issue and record various types of loans it underwrites and issues.
The firm’s most popular offering is its Home Equity Line of Credit, or HELOC, a type of loan taken out against the value of a house. Figure claims to have originated $13 billion worth of HELOCs.
The firm says putting such loans on blockchains can reduce costs and increase liquidity and efficiency.
“By taking historically illiquid assets — such as loans — and putting these assets and their performance history onchain, blockchain can bring liquidity to markets that have never had such,” Mike Cagney, Figure’s co-founder and executive chairman, said in a September letter.
But market data shows liquidity for Figure’s loan token is unusually low.
Data from Figure markets, an exchange and lending market that merged with Figure in July, shows just $1,516 worth of transactions took place for the $13 billion Figure Heloc token over the past 24 hours.
Low liquidity can cause outsized price swings if traders place large orders to buy or sell a token. Similarly sized assets usually support hundreds of millions of dollars worth of daily trading volume.
Others have criticised the lack of transparency surrounding Figure’s onchain loans.
0xngmi, the pseudonymous head of crypto data platform DefiLlama, said in September that the $13 billion in loans Figure claims to have originated couldn’t be verified.
“The vast majority of [sic] their loans is done in fiat, and we could barely find any onchain payments,” he said.
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.
