Okay, so… Something happened.
The USDT price momentarily dropped lower than it did during the FTX crash.
That’s… alarming.
Such momentary depegs are not something unheard of. USDT price has been even lower before. Events like this are indicative of the market sentiment.
Let's figure out what's happening.
USDT has slightly deviated from its parity with the US dollar to about ~$0.996.
A bit of numbers:
As of the beginning of Thursday, June 15, the share of USDT in the '3pool' on Curve Finance has grown to more than 70%.
At one moment, The pool contained a total of $300+ million in USDT.
The issue is that, in comparison, the volume of DAI and USDC was ~$50 million and ~$49 million respectively. And at the same time.
The price of the USDC/USDT trading pair continued to rise.
It reached an annual high today, breaking through the $1.0034 mark. Essentially, USDT 'sank' by 0.3%.
In Aave v2 (a lending protocol), deposit and lending rates for USDT increased by 20% and 30% respectively.
The markets are seeing a trend where traders intensely 'dump' the asset, sometimes with minor losses.
There are also traders who are trying to profit from the situation.
If this seems complicated, it's actually simple: someone borrowed USDC, repaid the debt after swapping into USDT (timing it right), and kept the difference.
But the situation in the Curve and Uniswap pools is concerning. What threat does this pose at this moment?
A sudden increase of USDT sellers in the pools could lead to the asset losing its peg to the USD.
Similar incidents occurred three times in the past two years - during the Terra crash, the FTX bankruptcy, and the liquidation of Silicon Valley Bank.
In the last few days, the net inflow of USDT into the '3pool', one of the largest in the DeFi sector, has significantly increased:
Let's clarify how a 3-token pool works.
If you have USDT and you exchange it for USDC, you contribute to decreasing the proportion of USDC and increasing that of USDT.
This confirms the conclusion made above. Sellers are massively 'dumping' USDT.
Frankly, the market is 'feverish', which means traders can expect turbulence ahead.
How did Tether explain the event?
Tether's Technical Director stated:
"The markets are a little 'nervy' these days, and speculators are easily taking advantage of this to extract their own benefits. But at Tether, we are ready as always. Let them come. We can buy any amount."
He urged the audience not to panic. In his opinion, the current volatility is temporary, and USDT will not lose its peg.
Is there something more to this?
Some expect the USDT issuer may come under pressure.
The possibility of regulators taking an interest in the firm has been mentioned more than once.
However, considering the volume of USDT printed by such a company, it couldn't have emerged without some regulatory assistance.
Nevertheless, any such claim can be called insufficiently substantiated.
The main point: the situation indicates that USDT is on the brink of informational shocks, and this needs to be taken into account.
TL;DR: Rumors are circulating online that a crisis is brewing in the USDT market. Over the last few days, the number of sellers in the Curve Finance and Uniswap pools has sharply increased. Tether CTO Paolo Ardoino calls for calm.