The Bitcoin and crypto markets are deep in the red today. Although the US Federal Reserve announced the hoped-for interest rate pause yesterday, the publication of the updated dot plot came as a nasty surprise to the financial markets.
The Fed revealed in its updated dot chart that it sees the average closing rate for 2023 at 5.6% instead of 5.1%. As Fed Chairman Jerome Powell explained, almost all FOMC members think further hikes are reasonable. And the resulting price drop in the crypto markets is currently also affecting Tether’s stablecoin, USDT.
Tether (USDT) De-Pegs something
USDT has lost some of its peg to the US dollar at the time of writing. On Binance, the USDC/USDT exchange rate was 1.0030. The reason for this appears to be Curve’s 3Pool, one of the main pools for stablecoin trading in decentralized finance.
Currently USDT accounts for 73.79% of the Curve 3Pool, DAI for 13.05% and USDC for 13.16%. Apparently, users are rushing to exchange tens of millions of USDT in favor of the USD Coin (USDC) and Dai (DAI) stablecoins.
The ideal balance of the Curve 3Pool should be 33.33% for each of the three stablecoins. Due to the imbalance, USDT is currently de-pegging.
Chinese journalist Collin Wu also reports that in Aave V2, USDT lending rates skyrocketed, including the deposit rate by more than 20% and the borrowing rate by more than 30%. Some large whales borrow USDT on Aave and sell it on DEX like Curve.
One of them is Ethereum whale @samczsun. He borrowed 31.5 million USDT from Aave V2 with 17,000 ETH and 14,000 stETH as collateral, then exchanged all borrowed USDT for USDC on 1inch. The borrower then deposited USDC 10 million and USDC 21 million into V2 and V3 respectively. This man then borrowed 12 million USDT from V3 and deposited it with V2. Wu on explains:
Twenty minutes after czsamsun.eth borrowed USDT, another address (0xd2…0701) mortgaged 52,200 stETH via Aave V2 and borrowed 50 million USDC, using USDC>USDT de-peg, with a few million USDC converts USDC from Curve to USDT in batches at a time, and each operation can yield an additional 1000-8000 USDT.
Tether CTO Paolo Arduino, however, remains calm. On Twitter, he noticed that “markets are tense these days,” adding, “so it’s easy for attackers to capitalize on this general sentiment. But at Tether, we’re ready as always. Keep ’em coming. We’re ready to cash in on any amount .
The last time Curve 3Pool was out of balance was in mid-March when USDC and DAI balances each rose over 45%. In addition, there was also an imbalance in November 2022 when FTX and in May 2022 when the Terra ecosystem collapsed.
Will the crypto market continue to fall?
Bitcoin, as a leading indicator for the crypto market, is in a critical situation. For the first time since the mid-March crash, BTC price has fallen below the extremely important 200-day EMA (blue line). A recapture of the current $25,290 price level could be instrumental in creating a recovery similar to mid-March 2023.
Featured image from iStock, chart from TradingView.com