Tether (USDT) Depreciation Amid Curve (CRV) and Aave Disputes Sparks Crypto Market Concern; Tether CTO Assures Readiness for Redemptions
Tether (USDT), the dominant stablecoin with a market capitalization of $83 billion, experienced a slight deviation from its usual 1:1 peg with the US dollar on Thursday. This shift occurred in response to the decision made by AAVE, a decentralized finance (DeFi) lending and borrowing protocol, to halt the usage of Curve (CRV) as collateral for loans on their platform.
In light of the developments regarding Tether’s depegging and the restrictions on Curve (CRV) usage, whales and investors are seizing arbitrage opportunities by exchanging Tether (USDT) for other stablecoins such as USDC and DAI on platforms like Curve, Uniswap, and 1inch. This activity is driven by the desire to maintain stability and mitigate potential risks in the current market environment.
Tether CTO Assures Readiness for Redemptions Amid USDT Depeg FUD
Tether CTO, Paolo Ardoino, took to Twitter to address the growing fear, uncertainty, and doubt (FUD) surrounding USDT in the midst of negative sentiment within the crypto market. He reassured the community that Tether is fully prepared to handle any amount of redemptions, emphasizing their readiness to redeem any requested quantity. The issue of Tether’s reserve backing has been a significant concern for critics, who question the availability of funds and potential default. Amid the prevailing market edginess, Ardoino affirmed Tether’s preparedness to face these challenges and encouraged those with doubts to come forward.
According to the most recent Tether reserves data, a significant portion of their holdings is allocated as follows: 84.7% in cash and cash equivalents, 4.14% in precious metals, and 1.83% in Bitcoin. The cash and cash equivalents primarily consist of U.S. Treasury bills. However, the balance within the Curve 3Pool, which is designed to have an equal distribution of USDT, USDC, and DAI stablecoins, has become imbalanced, with the USDT portion surging by over 72%. As a result, DeFi traders and whales have been selling millions of USDT in exchange for USDC and DAI, leading to Tether’s leading stablecoin depegging and declining to a value of $0.996.
A significant Ethereum address with the name czsamsun.eth utilized Aave V2 to borrow 31.5 million USDT, pledging 17,000 ETH and 14,000 stETH as collateral. The borrower then proceeded to exchange the entire borrowed USDT into USDC. Additionally, they deposited 10 million USDC into Aave V2 and 21 million USDC into Aave V3. Notably, the borrower also borrowed an additional 12 million USDT from Aave V3 and subsequently deposited it into Aave V2.
How It All Started
In a move to mitigate the risk of liquidation for a $65 million stablecoin loan, Michael Egorov, the founder of Curve Finance, deposited $24 million worth of Curve DAO (CRV) tokens into Aave. According to data from Debank, the wallet associated with Michael Egorov provided a total collateral of $188 million on Aave v2, with $64.2 million borrowed in USDT. The health rate, currently at 1.55, signifies that the collateral will automatically liquidate if it falls below 1.00.
Risk management firm Gauntlet has advised the Aave community to take measures to mitigate risks by freezing CRV collateral and setting the Curve Loan-to-Value (LTV) ratio to 0. This recommendation aims to prevent Michael Egorov from further adding CRV tokens, which could potentially increase concentration risk. The liquidity of CRV has been on a decline in recent months, making it important to address the potential risks associated with its use as collateral on Aave.
Over the past 24 hours, the price of Curve DAO Token (CRV) has experienced a significant decline of 12%, while its value has dropped by 25% over the course of the past week. Currently, the token is trading at $0.57. Similarly, AAVE, another prominent cryptocurrency, has seen a decrease in its price, with an 11% drop in the last 24 hours and a 16% decline over the week. As of now, AAVE is trading at $49.56.
Important: This article is intended solely for informational purposes. It should not be considered or relied upon as legal, tax, investment, financial, or any other form of advice.
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