The current USDC drop to $0.9 has had various consequences in decentralized finance (DeFi). Between Curve’s liquidity pool imbalance (CRV) and stablecoin DAI’s depeg, we have attempted to make a non-exhaustive list.
USDC Crisis Impacts DeFi
As the cryptocurrency ecosystem grapples with the loss of USDC’s dollar peg since last night, the repercussions of this event are being felt on decentralized finance (Challenge). The first of these is that another stablecoin is suffering the drop: MakerDAO’s DAI.
Indeed, this decentralized stablecoin works on a debt system: investors deposit cryptocurrencies whose value gives them the right to create DAI. But since part of this collateralization is provided by USDC, the panic is mechanically reflected in this stablecoin.
That is why the price of the DAI currently follows that of the USDCnamely around 0.9 dollars approximately.
About debt, an interesting phenomenon can be observed on the Aave loans and borrowings protocol. Indeed, with investors turning away from USDC and DAI in favor of USDT, this totally disrupted interest rates. Thus, interest rates on USDT and LUSD could exceed three digits during the writing of these lines:
Figure 1 – Aave USDT and LUSD interest rates on the Ethereum (ETH) blockchain
Ethereum blockchain rates above are very volatile, even more so for the LUSD due to its very low liquidity. On the Polygon network, USDT rates were 35% for deposits and 48% for borrowing. It is explained by a drying up of USDT and LUSD reserves caused by strong market demand.
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The impact on Curve’s liquidity pools (CRV)
Curve is the first decentralized DeFi exchange and one of the protocol’s flagship liquidity pools is the 3pool. As its name suggests, it is made up of three different stablecoins: USDT, USDC and DAI.
This pool allows easy exchanges between these assets, but the current panic has had the effect of empty the reserves of USDT and fill them almost exclusively with USDC :
Figure 2 – CRV 3pool on Ethereum
A similar phenomenon is observed on the pool containing sUSD and the three stablecoins mentioned above, with a USDC accounting for nearly 65% of the $65 million in cash.
This imbalance can then lead to strong slippage in the event of a trade. This means that the lack of liquidity means that one does not receive the exchange rate that one should normally receive. This is what unfortunately happened last night to an investor who traded over 2 million USDC for 0.05 USDTusing KyberSwap’s liquidity aggregator:
Figure 3 – Slippage on a USDC to USDT trade
In addition, the current panic has led to an increase in the demand for the various blockchains where the stablecoin in crisis operates. On Ethereum, for example, the price of gas has risen to a daily average of 79 Gwei according to data from Ultra sound money. This is only an average, because currently, this value is struggling to fall below 100 Gwei.
On the other hand, more than 8,600 ETH have been burned in the last 24 hours, which is almost 6 ETH per minute and a reduction in inflation of around $12 million. By comparison, just under 3,800 ETH were burned on Thursday.
Due to the current volatility of the ecosystem, all this data changes regularlybut it shows that the difficulties of a single actor can have consequences on many aspects.
👉 Also in the news – Why did the USDC lose its peg to the dollar overnight?
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Sources: Aave, Curve, Etherscan, Ultra sound money
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I timidly discovered the world of blockchain at the end of 2018 during my quest for financial freedom. Initially invested moderately, it was only two years later that I took the gamble of betting everything on the movement that was taking shape then. I then dedicate 2021 to training myself better to acquire more knowledge and seriousness. As I often like to say: I still have a billion things to learn. And what I do know, I want to share with you.
Vincent Mayor
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