YC W22's Stablegains Is Down 92% and Getting Sued

Stablegains is a stablecoin yield platform that collapsed when Terra's UST stablecoin lost its peg. Stablegains promised investors 15% gains, but today its fund is down 92%. Now the company faces a class action lawsuit for allegedly misrepresenting how it allocated investor funds.

Stablegains was a YCombinator Winter '22 company with $3M in funding. Their business model was simple: take money from investors, convert it to UST, then stake the UST in Anchor Protocol. Anchor returned ~20% yields, but Stablegains only paid its investors up to 15%, keeping the rest for itself. At its peak, stablegains had $47.6M under management, all in UST, and over 4,800 customers.

According to the class action lawsuit, Stablegains allegedly claimed it was spreading investor funds over several stablecoins to reduce risk. Originally, Stablegains claimed it held USDC, DAI, and UST. More recently, Stablegains claimed it was generating yields from USDC and UST. In reality, all investor funds were held in UST.

When UST collapsed, Stablegains held 47.6M UST tokens worth $47.6M. Today they're worth ~$3.8M.

Cashing Out

Stablegains users are able to cash out at the current UST market rate, which is about $.08 today. If someone put in $1k, they'd be able to cash out about $80 worth of UST.

Stablegains users are also reporting strange requirements for cashing out their tokens. Twitter user @Placidlol claims Stablegains is requiring investors to forfeit their right to sue Stablegains before cashing them out. It's unclear if Stablegains also required users to forfeit their right to sue at cash out before the Terra collapse.

Blood Brothers

Similar investment platforms are also in trouble. Alice Finance relied heavily on Anchor Protocol and still features Do Kwon's name in its website's "Trusted by the Best" section. Alice's Twitter is filled with investors who want to cash out. Alice claims it's unwinding positions to access remaining user funds to aide cash outs:

Alice users, we are currently working on an emergency restitution plan for users impacted by the Terra collapse. This process involves retrieving corporate funds that are locked in various places and will take time. Please know this is of utmost priority at Alice.

Vertex Protocol recently raised $8.5M to launch a trading platform on top of Anchor Protocol. Terra collapsed between its beta and public launches. It's not publicly known whether Vertex will pivot or remain on the Terra blockchain.