The leading stablecoin, Tether (USDT) with an $83 billion market cap, experienced a slight depegging from its usual 1:1 ratio with the US dollar on Thursday. This event coincided with the DeFi lending and borrowing protocol AAVE’s decision to freeze Curve (CRV) use as collateral for loans on its platform. Consequently, whales and investors are capitalizing on arbitrage opportunities, exchanging USDT for USDC and DAI stablecoins on exchanges Curve, Uniswap, and 1inch.
In response to concerns surrounding USDT and negative sentiment in the crypto market, Tether CTO Paolo Ardoino took to Twitter to reassure the community. Ardoino emphasized that Tether is prepared for any amount of redemptions. Skeptics have claimed that Tether lacks sufficient funds and may default. According to recent data, 84.7% of Tether’s reserves are held in cash & cash equivalents, 4.14% in precious metals, and 1.83% in Bitcoin. Its cash & cash equivalents are primarily in U.S. Treasury bills.
The move caused an imbalance in the Curve 3Pool, which should have an equal composition of USDT, USDC, and DAI stablecoins. The USDT balance rose above 72%, prompting DeFi traders and whales to sell millions of USDT for USDC and DAI, leading to Tether’s depegging at $0.996. A notable Ethereum address, czsamsun.eth, borrowed 31.5 million USDT from Aave V2, using 17k ETH and 14k stETH as collateral and subsequently swapped all borrowed USDT into USDC.
This situation originated earlier this week when Curve Finance founder Michael Egorov deposited $24 million worth of Curve DAO (CRV) tokens to Aave to reduce the liquidation risk of a $65 million stablecoin loan. Debank revealed that a wallet connected to Egorov provided $188 million in total collateral on Aave v2, with $64.2 million in USDT borrowed. The loan’s health rate is 1.55, but if it drops below 1.00, the collateral will be automatically liquidated.
To mitigate potential risks, Gauntlet recommended that the Aave community freeze CRV collateral and set Curve LTV to 0. This action would prevent Egorov from adding more CRV and increasing concentration risk, as CRV liquidity has dwindled in recent months.
The Curve DAO Token (CRV) saw a 12% drop in price over the last 24 hours and a 25% weekly decrease, trading at $0.57. Likewise, the AAVE price is currently at $49.56, a 11% decrease within 24 hours and a 16% plunge within a week.
As investing in cryptocurrencies carries inherent risks, readers are advised to conduct comprehensive market research before making any decisions. The author and the publication do not assume any responsibility for personal financial losses.
Source: Coingape
