TL;DR Breakdown
- Defi Money Market halts operations.
- Users have to redeem their mTokens before it drops to 0% by February 10.
- Its shutdown has potential consequences for other asset tokenization projects.
In one of the most shocking moves in recent times, Defi Money Market, also known as DMM, announced that it would be shutting down its operations. The digital asset project has said this was necessary due to the regulatory inquiries, marking the end of one of the pioneer projects seeking to bring real estate tokenization projects to the blockchain network.
For those who don’t know what the DMM protocol is all about, a brief introduction is in order. The Defi Money Market protocol is a project created to solve the instability and volatility of the Defi ecosystem. It seeks to encourage mass adoption of crypto and decentralized finance by making it more stable and trustworthy.
This would be achieved by using real world assets as collateral for DMM assets. All the underlying assets are overcollateralized, ensuring that they will always generate more liquidity than the asset it is collateralizing which led many enthusiasts to label the project a game-changer. It also provided tokens with more than 6% interest rate and it is secured by an underlying asset of real-world car loans. It enjoyed the support of Tim Draper, the billionaire investor and had custom Chain Link oracle embedded into it.
Why DMM failed
The recent announcement of a stop in its operations show it has not been able to achieve its goals. In a statement on its website, the Defi platform thanked users and supporters of the project, stating that while it regrets its actions and knows that many people have questions, it cannot provide answers at present.
There are speculations as to what the regulatory inquiries that the team mentioned in its announcement could possibly be. Many people believe this refers to the token launch of the organization, which had several issues. While the Initial decentralized exchange offering was able to raise $6.5million within the first two days, there were issues with transactions and the platform’s interface.
There were also reports that documents uploaded by the company after the token sale to prove loan backing revealed who the loan holders are. Thus, causing another significant problem for the company.
After its announcement of shut down, the DMM DMG token fell significantly. It dropped from $0.53 to $0.093 in just one night. While holders have a reason to be worried, all hope is not lost. The statement released by DMM stated that it was creating additional funds to ensure the redemption of DMG tokens.
Users’ concerns regarding shutdown
DMG token holders have taken to social media, especially Twitter, to express their grievances about the whole issue. Several users especially complained about the lack of information and clarity about the whole event.
For instance, while the company claimed that regulatory inquiries were responsible for their shutting down, they failed to mention who the regulator was. As of press time, there have not been any news or reports of any regulator making an inquiry into the company.
However, this is not the only instance of the company withholding information about its shutdown. In fact, the entire statement announcing the shutdown suggests withholding information. DMM itself all but admitted this in the statement when it said that it could not provide answers to any question at present.
Beyond that, the redemption process for the DMG tokens is not clearly explained on this website. This raises an issue of several users being unable to redeem their tokens before the February 10 deadline when the yield will drop to zero. For a company dealing with people’s money, this is almost unforgivable.
Effects of DeFi Money Market shutdown
The shutdown of the Defi Money Market will undoubtedly have adverse effects on other asset tokenization projects based on decentralized finance. This is because the DMM project was one of the pioneers with a lot of good publicity surrounding its launch.
It has failed woefully in its goals of making the DeFi space more stable and trusted by investors and considering the initiative offered the promise of innovation with its launch while enjoying the support of influential figures in the crypto industry such as Tim Draper, many expected it to be a success.
But this has not been so, it has failed at this, becoming guilty of the same issues it sought to correct. As a pioneer, it has set a bad precedent for other similar projects that might come along in the future. Many investors who are already skeptical about projects like this now have a good example of a failed project to point to.
Thus, Defi asset tokenization might take a lot more time to gain the adoption it seeks in the crypto industry and the wider financial community.
It must be stated this shutdown is not without its positives too. While the investors may have lost money or even their trust in projects like this, similar projects have a chance to learn. They can study where DMM went wrong and determine how best to avoid similar regulatory problems.
