Overview
DOLA is the USD-pegged stablecoin of Inverse Finance, a DeFi protocol operating on Ethereum. DOLA is minted when users deposit collateral (ETH, stETH, wBTC, and other assets) into Inverse's lending market, FiRM (Fixed Rate Market), and borrow DOLA against their deposits. The overcollateralized model is similar to MakerDAO's DAI — users must maintain collateral ratios above minimum thresholds to avoid liquidation.
Inverse Finance introduced an innovative concept called DBR (DOLA Borrowing Rights) — a token that represents the right to borrow DOLA over time. Borrowers must hold and consume DBR tokens to maintain their DOLA loans, creating a unique borrowing cost mechanism separate from traditional interest rates. This design creates a market-driven borrowing cost based on DBR supply and demand.
However, Inverse Finance's history is marred by two significant exploits in 2022. In April 2022, an oracle manipulation attack on Inverse's original lending market (Frontier) resulted in approximately $15.6 million in losses. In June 2022, a second oracle manipulation exploit drained approximately $1.2 million more. These incidents severely damaged the protocol's reputation and DOLA's credibility.
Since the exploits, Inverse has rebuilt with the FiRM lending market (incorporating lessons from the security failures) and has gradually worked to restore DOLA's peg and liquidity. The recovery has been slow, and DOLA's market cap remains modest (~$60-100M), far below major stablecoins.
Peg Stability
Current Peg Performance
Post-recovery, DOLA has maintained a generally stable peg, trading close to $1 with occasional minor deviations. The FiRM lending market's overcollateralized structure provides a fundamental peg mechanism — DOLA can be minted at $1 value of collateral and redeemed similarly.
Historical Instability
During and after the 2022 exploits, DOLA traded below peg as confidence collapsed. The protocol's bad debt from the exploits impaired the backing ratio. The recovery process involved the protocol gradually repaying bad debt using treasury resources and protocol revenue.
Peg Mechanisms
DOLA's peg is maintained through collateralized minting (creating DOLA at $1 against collateral), AMO-style operations (Inverse manages DOLA liquidity in Curve and other pools), and arbitrage incentives (below-peg DOLA can be used to repay loans at a discount, creating buying pressure).
Collateralization
Overcollateralized Model
DOLA is overcollateralized through FiRM — all DOLA borrowing requires excess collateral deposits. Accepted collateral includes ETH, stETH, wBTC, and other crypto assets. Minimum collateral ratios ensure that DOLA backing exceeds outstanding supply under normal market conditions.
Bad Debt Legacy
The 2022 exploits created approximately $16-17M in bad debt — DOLA that was minted without corresponding collateral due to the oracle manipulations. Inverse Finance has been gradually repaying this bad debt through protocol revenue and treasury resources. The bad debt recovery is a long-term process that affects the protocol's effective collateral ratio.
Transparency
On-chain collateral is transparently verifiable. FiRM positions, collateral deposits, and DOLA supply are all on-chain and auditable. The bad debt repayment progress is tracked publicly. Transparency is a strength relative to the protocol's recovery narrative.
Security
2022 Exploits
April 2022 — Frontier Exploit (~$15.6M): An attacker manipulated the price oracle for INV (Inverse's governance token) used as collateral on the Frontier lending market. By artificially inflating INV's oracle price, the attacker borrowed DOLA against overvalued INV collateral, then withdrew the borrowed DOLA, leaving the protocol with bad debt.
June 2022 — Second Exploit (~$1.2M): A similar oracle manipulation attack exploited remaining Frontier positions, draining additional value before the lending market was fully deprecated.
Post-Exploit Security
FiRM was designed with the 2022 exploit lessons in mind. Key improvements include Chainlink oracle integration with manipulation resistance, personal collateral escrows (collateral held in individual contracts rather than a shared pool), conservative collateral factors, and the DBR mechanism that separates borrowing cost from position management. The FiRM design is demonstrably more secure than Frontier.
Ongoing Risk
While FiRM addresses the specific attack vectors from 2022, DeFi lending protocols inherently carry smart contract risk. The protocol's smaller size means less security investment than larger competitors.
Decentralization
Governance
Inverse Finance is governed by INV token holders through on-chain voting. Governance participation is active for the community's size. Key decisions — collateral additions, risk parameters, bad debt repayment strategies — are made through governance proposals.
Protocol Operation
FiRM operates permissionlessly on Ethereum. Anyone can supply collateral and mint DOLA. Liquidations are permissionless. The protocol does not have admin keys that can freeze or seize user funds.
Adoption
Small Scale
DOLA's market cap (~$60-100M) is small relative to major stablecoins. Adoption is primarily within the Inverse Finance ecosystem and Curve pools where DOLA maintains liquidity. Cross-protocol integrations are limited.
Curve Ecosystem
DOLA has meaningful presence in Curve Finance, where Inverse maintains liquidity pools and uses veToken strategies. The Curve integration provides the primary source of DOLA liquidity and trading volume.
Growth Trajectory
Growth has been slow post-exploit. The bad debt overhang and reputational damage limit new user acquisition. The protocol is in a recovery phase where demonstrating sustained security and peg stability is the priority over aggressive growth.
Risk Factors
- Exploit history: Two major exploits in 2022 totaling ~$16.8M demonstrate historical security failures.
- Bad debt legacy: Ongoing bad debt repayment affects protocol health metrics.
- Small scale: Limited market cap and liquidity create fragility.
- Reputational damage: 2022 exploits have permanently scarred the protocol's reputation.
- Smart contract risk: DeFi lending protocols carry inherent contract risk.
- INV token concentration: Governance token distribution may concentrate decision-making.
Conclusion
DOLA represents a recovery story — a stablecoin that was nearly killed by two oracle manipulation exploits in 2022 and has been slowly rebuilding under the improved FiRM architecture. The DBR borrowing rights mechanism is genuinely innovative, and the FiRM design addresses the specific vulnerabilities that enabled the 2022 attacks.
The 4.4 score reflects functional design with real innovation (overcollateralized model + DBR mechanism) significantly discounted by the exploit history and its lasting consequences. DOLA is honest about its past — the bad debt is tracked publicly, and the recovery is transparent. But honesty about past failures doesn't erase them. DOLA needs years of clean operation at growing scale to fully rehabilitate its reputation. For now, it's a functional but small stablecoin carrying the weight of its history.