5 Things You Must Know About USDT Depeg: Crypto Market About To Take Another Beating?  

5 Things You Must Know About USDT Depeg: Crypto Market About To Take Another Beating?  

Key Insights

  • USDT, the most popular stablecoin, briefly depegged from the US dollar on June 15, 2023.
  • The de-pegging was caused by an imbalance in the Curve 3Pool, a liquidity pool that allows users to trade between USDT, USDC, and DAI.
  • The de-pegging has shaken investor confidence in the crypto market, and prices have declined across the board.
  • Analysts remain optimistic about the long-term future of crypto but say that the market could experience more volatility in the near term.

The crypto market has been struggling to recover from the bear market that has raged on for the last two years (since  2021).

Since 2021, the crypto market has taken one hit after another, from the Terra crash to FTX, and from SVB to the countless attacks and exploits that have ravaged the market.

So far, the bear market has wiped out more than $1 trillion of the crypto market's value and while many investors remain hopeful for a rebound, there is a new threat over the horizon:

The de-pegging of USDT, the most popular stablecoin in the industry.

USDT Depegging: What Really Happened?

USDT, or Tether, is by far, one of the most popular stablecoins on the market, especially among traders who want to get their funds out of the market during a dip or move funds quickly between platforms.

According to CoinMarketCap, USDT has a market cap of over $83 billion, making it the third-largest cryptocurrency by that metric.

From this, you can tell that USDT is a big deal. But what happens when a stablecoin stops being "stable"?

This is what happened this week on 15 June, when USDT experienced a slight deviation from its dollar peg on some decentralized exchanges like Curve and Uniswap.

This means that USDT was trading below a dollar, instead of remaining stable at its $1 peg as intended.

For example, the USDT balance of Curve's 3Pool (one of the largest liquidity pools for USDT trading) increased to over 70%, as illustrated by this tweet, because of the trading frenzy that occurred with traders trying to dump their USDT and buy others like DAI and USDC.

What Caused the Depegging?

According to some analysts, USDT depegged due to an imbalance in the Curve 3Pool, which was overrun with USDT sellers who wanted to take advantage of the arbitrage opportunity.

And for those who didn't know, arbitrage is a trading strategy that involves buying and selling the same asset across different platforms, to profit from price differences.

The USDT price declined 0.3% to roughly $0.997, as the USDT weightage in the curve 3pool climbed to more than 70% from the optimal 33.1%.

In this case, traders (mostly whales) could buy USDT for $0.997 on Curve, and sell it for $1 on other platforms.

In this setup, a $10,000 investment would pull about $30 worth of profits right out of "thin air".

The major reason for the imbalance was ascribed to "CZSamSun", a whale address that borrowed 31.5 million USDT with 17,000 ETH and 14,000 stETH as collateral, and traded it for USDC on 1Inch.

CZSamSun then made deposits of $10 million and $21 million to V2 and V3, respectively. Right after that, this address got a USDT loan from V3 and deposited it in V2.

After CZSamSun.eth borrowed USDT, another separate address (0xd2…0701) mortgaged 52,200 stETH using Aave V2 and borrowed a fresh 50 million USDC.

These little fluctuations in the price of USDT allowed the USDC/USDT trading pair on Binance to reach a new yearly high of $1.0034 (last seen when FTX went under).

What Does This Mean For The Crypto Market?

USDT, as mentioned earlier, is one of the most popular stablecoins on the market. As a result, the stablecoin going under should be a big deal.

According to a tweet from Tether's chief technology officer (CTO), Paolo Ardoino, there is no reason to panic.

In the tweet, Ardoino mentioned that Tether is ready to buy back any volume of USDT at $1 to maintain its peg.

He also said that the de-pegging was only temporary and that it would be resolved soon. He attributed the whole scenario to a technical issue with Curve's 3Pool that caused an imbalance in the pool's composition.

The Crypto Market's Reaction

Meanwhile, the crypto market is currently taking a severe beating.

The global crypto market cap has declined and is hanging by a thread above the $1 trillion mark.

The Global Crypto Market cap | Source: <a href='https://coinmarketcap.com/charts/' target='_blank' rel='noreferrer noopener'>CoinMarketCap</a>
The Global Crypto Market cap | Source: CoinMarketCap

Ethereum, XRP, BNB, Cardano, MATIC, Litecoin and Polkadot have each taken more than 6% beatings over the last 24 hours, leading to a generally bearish verdict on the crypto market.

The Global Crypto Market's performance | Source: CoinMarketCap
The Global Crypto Market's performance | Source: CoinMarketCap

Bitcoin, in particular, has taken a fresh 4% thrashing over the last 24 hours and is down by 6% over the last week.

According to a tweet from Glassnode, despite recent swings in Bitcoin's spot price, the sum of realized losses locked in by investors remains at $91.3 million, a far cry from the cycle top of $3.16 billion.

This, according to Glassnode, indicates that a lot of Bitcoin was traded near the current spot price.

While Glassnode's analyses remain inconclusive, Santiment, in a tweet, has mentioned that due to the dropping crypto prices and the Binance/Coinbase issue with the SEC, trader sentiment has officially reached its lowest point since the covid-19 pandemic in March 2020.

This means that the crypto market may be headed for some uncertainty in the near term.

Overall, analysts remain optimistic about Bitcoin's future and have stated that this depeg is only temporary.

A good example is  the Crypto Investor Scott Melker, who explained in a tweet on Thursday this week, that "A stablecoin (or USDT's) depeg is not determined by its price on an exchange, but rather by whether you can redeem 1.1 from the source"

Overall, Tether's chief technology officer (CTO), Paolo Ardoino has said in another tweet:

"At Tether we're ready as always. Let them come"

Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.

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