Curve pool imbalance triggers USDT depeg concerns, Tether CTO calls it FUD

USDT Stablecoin Deviation from US Dollar Peg

On June 15, the USDT stablecoin experienced a slight deviation from its US dollar peg due to an imbalance in Curve’s 3pool. The value of USDT dropped by 0.3%, settling around 0.997, as its weightage in the curve 3pool rose to more than 70%, which is higher than its usual 33.1%.

The 3pool of Curve is a pool of stablecoins used for decentralized finance which contains a massive amount of liquidity in the three main stablecoins: USDT, USD Coin (USDC) and Dai (DAI). A sharp increase in the proportion of a particular stablecoin in the pool implies that there is a large amount of that asset being sold.

Traders are increasingly exchanging USDT for DAI or USDC due to its weightage of around 73.8%. In November 2022, the concentration of USDT in Curve’s 3pool even surpassed 50% when the FTX collapse occurred.

The primary factor for the instability was attributed to a whale address known as CZSamSun, which borrowed 31.5 million USDT and exchanged it for USDC, resulting in a minor fluctuation in the USDT’s U.S. dollar peg value. With the assistance of 17,000 Ether (ETH) and 14,000 staked Ether (stETH) as security, the address utilized the 1inch Network to transform the borrowed sum into USDC.

The borrower then deposited $10 million into Aave v2 and $21 million into Aave v3. Subsequently, they withdrew a loan of 12 million USDT from v3 and deposited it into v2.

Approximately 20 minutes after CZSamSun took out a loan in USDT, another address (0xd2…0701) staked 52,200 Ether (stETH) through Aave v2 and used the USDT/USDC price difference to borrow 50 million USDC.

The minor fluctuation in USDT value enabled the USDC/USDT trading pair on Binance to reach a yearly peak of $1.0034. USDT was responsible for 73.79% of Curve’s 3pool, with DAI accounting for 13.05% and USDC taking up 13.16%.

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Paolo Ardoino, Tether’s Chief Technology Officer, went on Twitter to reassure the crypto world that the depeg scare is nothing to be concerned about and that it is ready to reimburse any amount. Later, Ardoino also shared a “FUD meme” and addressed the market speculations regarding Tether’s depeg.

The most recent incident of a stablecoin depegging has occurred only a few months after the USDC depeg caused considerable disruption to many investors. In March, USDC dropped beneath $0.90 as Circle acknowledged that they had approximately $3 billion held up with Silicon Valley Bank. Despite the fact that Circle was able to get enough money together to restore USDC to the dollar within two days, the fright caused by the depegging led to numerous traders selling USDC at a deficit.

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