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USDT Peg Deviation Due to Curve Pool Disproportion Stirs Up Market Anxiety

USDT Peg Deviation Due to Curve Pool Disproportion Stirs Up Market Anxiety

The leading stablecoin Tether (USDT), experienced a minor deviation from its United States dollar peg on June 15, caused by an overbalance in the Curve’s 3pool. The USDT value dropped by approximately 0.3%, hovering at around 0.997 as its percentage within the curve 3pool rose to more than 70%, up from its typical 33.1%.

Curve’s 3pool is a robust stablecoin pool that provides significant liquidity for the top three stablecoins: USDT, USD Coin (USDC), and Dai. An uptick in the percentage of any stablecoin in this pool can indicate intensive selling of that specific asset.

Heavy USDT Selling Prompts Market Concerns

USDT’s weightage within the Curve 3pool climbed to roughly 73.8%, indicating that traders were offloading USDT in favor of DAI or USDC. The last instance of such concentration was in November 2022 when USDT’s stake in Curve’s 3pool exceeded the 50% mark amidst the FTX debacle.

The disproportion was mainly triggered by a ‘whale address’ referred to as CZSamSun. This address borrowed a whopping 31.5 million USDT, which was then swapped for USDC. This exchange led to a minor fluctuation in USDT’s pegging to the U.S. dollar. Leveraging 17,000 Ether and 14,000 staked Ether (stETH) as collateral, the borrowed amount was converted to USDC via the 1inch Network.

The borrower deposited amounts totaling $10 million and $21 million to Aave v2 and v3, respectively. Subsequently, the address took out a USDT loan of 12 million from v3, deposited into v2.

Market Ripple Effects Following USDT Borrowing

Approximately 20 minutes post the CZSamSun’s USDT borrowing, another address (0xd2…0701) pledged 52,200 staked Ether (stETH) through Aave v2 and borrowed 50 million USDC, leveraging the USDT/USDC price differential.

This minor variation in USDT’s price pushed the USDC/USDT trading pair on Binance to reach a new yearly peak of $1.0034. In Curve’s 3pool, USDT, DAI, and USDC accounted for 73.79%, 13.05%, and 13.16%, respectively.

Addressing the market’s concerns, Tether’s chief technology officer Paolo Ardoino reassured the crypto community via Twitter that there is no need for panic regarding the depegging. Furthermore, he confirmed Tether’s readiness to redeem any amount and debunked market rumors surrounding Tether’s depeg with a “FUD meme.”

The recent depegging scare of the stablecoin comes only a few months after a similar USDC depegging incident that wreaked havoc on numerous investors’ portfolios. In March, USDC’s value dropped below $0.90 as Circle acknowledged it had over $3 billion trapped with Silicon Valley Bank. Although Circle succeeded in raising enough capital to repeg USDC to the dollar within two days, the panic caused by the depegging incident prompted many traders to exit USDC at a loss.

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