Tether (USDT) De-Pegs As Crypto Market Stumbles, More Downside Coming?

The Bitcoin and crypto markets are deep in the red today. Even though the US Federal Reserve announced the hoped-for interest rate pause yesterday, the release of the updated dot plot was a nasty surprise for the financial markets.

The Fed revealed in its updated dot plot that it sees the average terminal interest rate at 5.6% instead of 5.1% for 2023. As Fed Chairman Jerome Powell explained, almost all FOMC members think further hikes are reasonable. And the resulting price slump in the crypto markets is also having an impact on Tether’s stablecoin, USDT, at the moment.

Tether (USDT) De-Pegs Slightly

USDT has slightly lost its peg to the US dollar at the time of writing. On Binance, the USDC / USDT exchange rate was at 1.0030. The reason for this seems to be Curve’s 3Pool, which is one of the most important pools for stablecoin trading in decentralized finance.

USDT de-pegs slightly | Source: USDC/USDT on TradingView.comCurrently 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 stablecoins USD Coin (USDC) and Dai (DAI).

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, the USDT lending rate skyrocketed, including the deposit rate by more than 20% and the loan rate by more than 30%. Some big whales are borrowing USDT on Aave and selling it on DEX like Curve.

One of them is Ethereum whale @samczsun. He borrowed 31.5 million USDT from Aave V2 using 17,000 ETH and 14,000 stETH as collateral, and then exchanged all the borrowed USDT for USDC on 1inch. The borrower then deposited USDC 10 million and USDC 21 million to V2 and V3 respectively. This guy then borrowed 12 million USDT from V3 and deposited it with V2. Wu further explains:

Twenty minutes after czsamsun.eth borrowed USDT, another address (0xd2…0701) mortgaged 52,200 stETH through 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 obtain an additional 1000-8000 USDT.

However, Tether CTO Paolo Arduino remains calm. On Twitter, he commented that “markets are edgy in these days,” adding: “so it’s easy for attackers to capitalize on this general sentiment. But at Tether we’re ready as always. Let them come. We’re ready to redeem any amount.”

The last time Curve 3Pool was unbalanced was in mid-March, when the balance of USDC and DAI rose to over 45% each. Moreover, there was also an imbalance in November 2022 when FTX and in May 2022 when the Terra eco collapsed.

Will The Crypto Market Continue To Fall?

Bitcoin, as the leading indicator for the crypto market, is in a critical situation. For the first time since the mid-March crash, the BTC price has fallen below the extremely important 200-day EMA (blue line). A recapture of the price level currently at $25,290 could be of high importance to create a recovery similar to mid-March 2023.

Bitcoin price falls below 200-day EMA, 1-day chart | Source: BTCUSD on TradingView.comFeatured image from iStock, chart from TradingView.com