- Tether’s USDT stablecoin has experienced a de-pegging from its intended value of $1
- Crypto Market is down by 3.85% in the last 24h.
- Imbalance in Curve’s 3Pool contributes to Tether’s de-pegging.
In recent hours, Tether’s stablecoin (USDT) has faced increasing instability, shockingly losing its peg to the US dollar. At the time of writing, USDT is trading at 0.9958. It continues its downward trend from the $1 peg. This development has raised concerns within the cryptocurrency community, with heavy selling pressure being cited as the primary cause for the de-pegging.
The crypto market has experienced significant downturns today at a decline rate of 3.85%. It is primarily influenced by the surprisingly updated dot plot the US Federal Reserve released. However, the Fed announced an anticipated pause in interest rates, the revelation of an average terminal interest rate of 5.6% for 2023, up from the previously expected 5.1%. It has sent shockwaves through financial markets. This price slump has directly impacted Tether’s stablecoin, USDT.
Untangling Tether’s Depeg
The de-pegging of USDT can be attributed to Curve’s 3Pool, a prominent platform for stablecoin trading in decentralized finance. Currently, USDT accounts for 73.79% of the Curve 3Pool, while DAI and USDC hold 13.05% and 13.16% respectively. In response to the imbalance, users have rushed to exchange tens of millions of USDT for alternative stablecoins such as USD Coin (USDC) and Dai (DAI), leading to the de-pegging of Tether.
Chinese journalist Collin Wu has reported a surge in USDT lending rates on Aave V2, with deposit rates increasing by more than 20% and loan rates by over 30%. Notably, large-scale investors known as “whales” are borrowing USDT on Aave and selling it on decentralized exchanges like Curve. One such whale, Ethereum’s “samczsun”, borrowed 31.5 million USDT from Aave V2 using ETH and stETH as collateral. The borrowers then converted the borrowed USDT to USDC on 1inch, thereby exacerbating the de-pegging phenomenon.
While the de-pegging of Tether has caused concern, Tether‘s CTO, Paolo Arduino, remains calm and confident. On Twitter, Arduino acknowledged the market’s edginess but assured users that Tether is prepared to redeem any amount and is ready to withstand challenges.
This is not the first time the Curve 3Pool has experienced an imbalance. Similar situations occurred in mid-March, and November 2022 during the FTX crisis.And in May 2022 when the Terra ecosystem collapsed.
Tether‘s de-pegging from the US dollar has added to the prevailing uncertainty and volatility in the crypto market. As users rush to exchange USDT for alternative stablecoins, market participants closely monitor developments and assess the potential implications of unstable stablecoins on their investment strategies.
