Amid rumors about the insolvency of the Huobi cryptocurrency exchange, the stablecoin Tether (USDT) slightly deviated from parity against the US dollar. Since the beginning of August 2023, the asset has been trading at a discount to USD Coin (USDC) on the Coinbase platform.
Huobi itself also has a similar situation. The spread is also observed in decentralized pools (for example, 3pool from Curve).
Coinbase USDT/USDC four-hour chart. Data: TradingView. Huobi USDC/USDT 4-hour chart. Data: Huobi.
Issuers of centralized stablecoins claim that such assets are fully backed by their reserves. However, despite all the assurances, “stable coins” remain extremely sensitive to market shocks – just remember the situation around the USDC against the backdrop of the banking crisis in the United States.
What happened to USDT
In early August, USDT lost parity against the US dollar and by the time this material was prepared, it had not restored it.
On August 1, the head of Binance, Changpeng Zhao, criticized the stablecoin. He compared the asset to a “black box”, noting the lack of relevant audit reports that would confirm its sufficient security.
At the same time, the cryptocurrency exchange is promoting another stablecoin, First Digital USD (FDUSD) from Hong Kong-based First Digital Labs. At the time of writing, it has a capitalization of over $260 million and an estimated aggregate trading volume of $14.88 million, according to CoinGecko.
Tether CTO Paolo Ardoino later stated that the USDT is “under pressure.” According to him, the asset’s closest competitor, USDC, is also losing capitalization, while an unnamed “newbie” in the segment “gets everything.”
Rumors about Huobi’s insolvency added fuel to the fire. Adam Cochrane, a partner at Cinneamhain Ventures, posted on X (formerly Twitter) in which he suggested that the cause of USDT’s problems lies in the potential bankruptcy of the exchange.
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So why is Tether selling off?
Likely Huobi insolvency.
-Binance started selling off USDT in bulk.
-We found out that Huobi execs (and Tron personnel questioned by police)
-This is not long after Sun’s stUSDT launch
-And weird balance shifts at Huobi in the last month pic.twitter.com/f3HViYS93a
— Adam Cochran (adamscochran.eth) (@adamscochran) August 5, 2023
According to him, some of the leaders of Huobi and Tron (the project is affiliated with the exchange – its founder Justin Sun is on the company’s advisory board) were questioned by Chinese police.
He added that Huobi’s reserves do not cover the face value of assets owned by its users. The expert suggested that Sun uses client funds to maintain profitability in various decentralized applications.
Cochran also drew attention to data from DeFi Llama, which indicates an outflow of funds from the platform.
According to Huobi’s own information, user assets are fully backed by the platform’s reserves. However, the latest audit available is dated July 2023.
Data: Huobi.
In a conversation with Incrypted, a Huobi spokesman called false information about the arrest of persons associated with the company in China.
A spokesman for the company also noted that there is no “huge outflow” of funds on the platform. According to him, DeFi Llama provides “inaccurate” data. He added that Huobi is already working with the service team to update the information.
And what about staking?
At the beginning of July 2023, the Stake USDT project was launched in the Tron ecosystem, which involves placing USDT on the platform of the same name to receive passive income.
The developers are positioning the application as an analogue of Lido. Users lock stablecoins in favor of special smart contracts and receive stUSDT tokens in return. The latter serve as evidence of investments in tokenized assets (real world assets; RWA) that the project performs on behalf of clients.
At the time of writing, Staked USDT offers an annual yield of 4.29%. The site states that the number of users of the protocol exceeds 351,000, and the total amount of funds contributed by stakers is estimated at ~ $507.32 million.
Data from DeFi Llama partially confirms this information. According to the service, assets worth $507.29 million are locked in the smart contracts of the protocol.
The amount of funds locked in smart contracts Staked USDT. Data: DeFi Llama.
Over 92% of all stUSDT in the Tron network (over $400 million) belongs to one single address. The Arkham Intelligence platform labels him as affiliated with the Huobi exchange.
Data: Tronscan. Data: Arkham Intelligence.
According to Cochran, the funds then flow to various decentralized services, including the JustLend landing protocol. According to the expert, this is a sign that Sun is using funds from Stake USDT clients for his own purposes.
At the same time, according to the project documentation, it is JustLend DAO that “patronizes” the platform at the initial stages of its development. Therefore, the transactions indicated by Cochran could potentially be carried out as part of an investment in RWA.
stUSDT are also issued on the Ethereum blockchain. However, owls