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Just Mining is obviously not the only company affected. Other French and foreign start-ups were exposed to the UST, which was still worth $18 billion at the beginning of May before it lost parity with the dollar (it is currently worth 90% less). According to several sources, US giant Celsius, which has yet to make a statement, may also have been caught up in the storm.

To fully understand what happened, we need to remember that the algorithmic stablecoin UST was one of the stars of the moment on the markets. Until a few weeks ago, you could deposit it in the Anchor protocol for an annual return of 19.5% 🤑. An unbeatable rate in decentralised finance (and pretty much everywhere in fact...).

For months, crypto companies offered their customers stablecoin return products with tempting rates thanks to a simple system: they converted some of the so-called "safe" stablecoins (USDC in particular) entrusted by their customers into USTs, which boosted overall performance. A mechanism that obviously broke down when the UST lost parity with the dollar and began to collapse from 7 May.

For almost all the players we interviewed, the risks of the UST were well identified, not least because of the outsized performance it provided. It was "too good to be sustainable", some are now rewinding.

Just Mining announced on Wednesday 11 May the extent of the damage, announcing an "exceptional" compensation plan: each customer will be covered for up to $1250. "This means that 73% of them will not take any loss", assures Owen Simonin, the boss of the Metz-based company. There was no legal obligation for Just Mining to compensate its customers.

1.4 million euros to limit the damage

According to our information, the "rescue" plan has cost the start-up, which is a heavyweight in the French ecosystem (65,000 customers in total for all its products), just over 1.4 million euros. This sum represents around "a third of the company's war chest", admits Owen Simonin. He also acknowledges that the company will need to strengthen its cash position if it is to remain in a position to invest.

Once considered by Just Mining, the possibility of seeking help from a player with deep pockets has finally been ruled out. "Others have been affected by the situation to a greater or lesser extent, at least all those who handle large volumes on DeFi," says the entrepreneur. "We haven't yet had a chance to debrief all these essentially international structures. They were all in a hurry and very unavailable", he says.

Is everything now settled? While Just Mining appears to have contained the fire, it is not out of the question that other companies may also be forced to announce losses. According to several sources, the analyses of the flows on the blockchain are sometimes at odds with the official communication. "A lot of companies offering yield (returns on cryptos, ed. note) will surely try to raise funds to contain their losses, if tomorrow all users decided to withdraw their money, we could see some terrible things happen," worries Anthony Lesoismier, co-founder of Swissborg.

Same tone of voice from a source close to the Autorité des marchés financiers (AMF): "If there had been, as in the traditional world, an obligation to return funds, several crypto players could have gone bankrupt".

Nearly 1,000 customers could not be covered

While Just Mining's "smallest" customers were ultimately spared, this was not the case for the "largest", whose losses exceeded $1,250. Just over 1,000 of the company's 4,000 lending customers have been affected by the fall in the UST and the company's exposure. "Around fifty customers are unhappy, but the majority of those who suffered losses were aware of how the product worked and the associated risks," insists Thibaut Boutrou, Just Mining's Operations Director. "Those who have criticised us did not fully understand the mechanism", says the start-up's number two. "We will continue to be even more demanding when it comes to transparency and educating our customers. This is important if we want the ecosystem to grow."

Just Mining has never hidden its exposure to UST in its product description sheet. When a customer sent "safe" stablecoins to the company, they were likely to be converted into UST and therefore subject to the associated risks. "It may seem easy to say a posteriori that UST should not have been touched, but the Terra ecosystem was valued at $50 billion, and it was inconceivable not to use UST as part of a DeFi diversification strategy", continues Thibaut Boutrou. Before it stalled, Just Mining's UST ratio was 37%. It then rose to 39.58% as a result of the fall in its share price.

Coinhouse is playing it safe

At the end of our survey, only Just Mining reported significant losses linked to UST. Coinhouse, France's leading broker, informed its customers on 14 May that this stablecoin "had never been available", either on its exchange platform or in its "Crypto Booklets" (products offering returns of between 4 and 5% on the reputedly safe stablecoins USDT, USDC and EURL). "Our team has always insisted that algorithmic stablecoins, such as UST, require a very cautious approach," says its boss Nicolas Louvet.

Just Mining was until March 2022 one of the Paris-based broker's sources for generating the return on its "Livrets Crypto", but UST was not part of the contract. "We have a great deal of confidence in Just Mining, which, like Coinhouse, is a member of Adan (the French association of crypto companies, editor's note) and registered with the AMF," Nicolas Louvet is keen to reassure. "We've known them since they were founded and look forward to working with them on new allocations," he continues.

Feel Mining and Swissborg say they limited the damage

Another French company, Feel Mining, claims to have been affected only marginally and asserts that assets brought in by customers were never exchanged for UST. "Some of the company's equity may have been converted into this stablecoin, but we got out before everything collapsed," says co-founder Nicolas Marchesse. According to him, Feel Mining suffered "only €7,000" in damages, "quickly compensated via arbitrage".

As for Swissborg, which has been registered with the AMF since the beginning of April, the fragility of UST had long been identified. "We were among the last to offer it, because it was a request from our community, but we never mixed it with other yield products," explains co-founder Anthony Lesoismier. In other words, you could be exposed to the juicy returns of UST, but only those who brought in UST could benefit. "We were criticised for our rates, but the choice not to add UST to the mix of our traditional yield products paid off," he says. According to the company, 7741 customers holding 23 million USTs were affected on 9 May.

The AMF is asking companies to explain themselves

For a market player who prefers to remain anonymous, "this affair is likely to leave a bitter taste in the mouths of the AMF". The market watchdog has sent PSAN-labelled firms a request for information about their level of involvement in the UST affair.

In the letter, which we have been able to consult, the AMF asks PSANs whether their prudential position (their level of solvency) has been affected, whether they held UST on their own account, whether they used it as a transaction pivot, and information about client exposure.

Contacted, the AMF declined to comment.

But already some are questioning the effectiveness of PSANs, which more than 30 crypto players have already obtained. "You really have to wonder what the point of this registration is," challenges a leading French player who preferred to remain anonymous. "It was pretty obvious that the Terra ecosystem had weaknesses and most of the companies benefiting from the AMF stamp gave access to the UST, in particular Binance", he bellows. The Chinese-born giant has had PSAN since 4 May.

In addition to the financial consequences for companies and their customers, this affair could have repercussions for negotiations around the European Markets in Crypto-Assets (MiCA) regulation, defining the future legal framework for cryptos, which will include a section on stablecoins. While it was envisaged that decentralised stablecoins (including UST) would be excluded from the future text, they could end up being subject to much stricter treatment...

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