USDT Depreciates Due to Sell-off Pressure on Curve and Uniswap

In the past 12 hours, the stablecoin Tether (USDT) has depreciated due to sell-off pressure across liquidity pools on Curve and Uniswap, similar to the depegging incident in mid-June.

USDT Depreciates Due to Sell-off Pressure on Curve and Uniswap

On-chain data reveals that a series of traders have seemingly liquidated USDT from Tether last night (03/08) across key stablecoin pools on Curve and Uniswap. Consequently, USDT briefly plummeted to $0.9976 and remained depegged below the $1 mark for an extended period.

In simpler terms, many have dumped/sold USDT in favor of other stablecoins, causing the pools to heavily imbalance. According to data pouring in, USDT balances now comprise 59.3% of the Curve 3pool, which includes USDT, USDC, and DAI, whereas USDC and DAI only constitute 20.7% and 20% of the total assets in the pool, respectively.

Asset allocation in the Curve 3pool as of 09:00 AM on 04/08/2023

Simultaneously, the USDT-USDC pool on Uniswap, one of the largest liquidity pairs on the platform, recorded a USDT balance of $103.12 million USD, while USDC accounted for only $8.7 million USD.

State of the USDC-USDT pool on UniSwap as of 09:00 AM on 04/08/2023

These statistics reflect that investors are currently favoring holding DAI and USDC over USDT. Under sell-off pressure, USDT has depegged, reaching a low of $0.9966 USD as recorded on CoinMarketCap. As of the time of writing, USDT has not yet recovered to the $1 mark.

Price fluctuations of USDT from the beginning of May 2023 to date, screenshot from CoinMarketCap at 08:45 AM on 04/08/2023

The liquidity pools on Curve and Uniswap are popular venues for traders to swiftly exchange one stablecoin for another. For the most part, tokens are balanced within pools. Imbalance serves as evidence of investor sentiment.

Immediately after USDT depegged, Paolo Ardoino, Tether's Chief Technology Officer, suggested that his "darling" was being manipulated. Below his comment, netizens also speculated about the involvement of Binance and CEO Changpeng Zhao (CZ) in manipulating the market. Paolo posted:

"Isn't it interesting that USDt is being pressured down (slightly, within 10bps, just to push market makers to react), and USDc, the main competitor that you would expect being gaining from the situation, is redeemed heavily nevertheless, while suddenly a competitor born 2 days…"

— Paolo Ardoino ? (@paoloardoino) August 3, 2023

"The USDT is under some pressure, and the main competitor USDC is benefiting from this situation with increased holdings. At the same time, a competitor born just 2 days ago is receiving all? This is definitely the truth and not manipulation."

The competitor recently introduced is likely the FDUSD stablecoin from First Digital, based in Hong Kong, which Binance has recently supported.

The exchange listed and offered free trading of FDUSD pairs on July 26. The platform also plans to open trading for Bitcoin (BTC) and Ethereum (ETH) with FDUSD, popularizing this stablecoin through zero-fee trading starting this Friday.

In just two days, the market capitalization of FDUSD has surged from $20 million to $258 million USD.

FDUSD market cap increase from $20 million to $258 million USD in the last 7 days. Source: CoinMarketCap

In the past, similar incidents occurred during the LUNA-UST crisis in May 2022 and the Silicon Valley Bank crisis affecting Circle's USDC.

However, this depegging incident is not as severe as the June 15 incident when the Curve Finance 3pool was attacked coinciding with New York authorities lifting the media gag, causing USDT to depeg to $0.9959 USD.

Tether's Q2 2023 asset verification report revealed the company earned $1 billion USD by holding assets backing USDT as U.S. Treasury bonds. During this period, USDT's market capitalization also hit a new ATH of $83.4 billion USD amidst signs of slowdown in the crypto market.