Cryptotraders made money on shorting TUSD stablecoin

Abnormal demand for TUSD Stablecoin supported by the largest cryptocurrency exchange Binance led to the growth of its rate above $1. And opened up non-standard opportunities for earnings

High demand for TrueUSD (TUSD) stablecoin led to the fact. At the moment, its rate exceeded $1 by 20%. This was used by cryptocurrency traders. Who played on the decrease of stablecoin. At the same time, expecting its return to parity with the dollar soon. Massive borrowing of TUSD in decentralized credit services led to a high growth of their interest rates.

TUSD’s share of the most capitalized stablecoin is skyrocketing. And largely thanks to the support of the largest cryptocurrency exchange Binance. The coin is ranked 29th by CoinMarketCap among all existing crypto-assets. Its market capitalization rose to $2.4 billion this week, though it was still at $755 million at the end of 2022.

Stablecoin was relatively unpopular until Binance eliminated trading commissions in the BTC/TUSD pair. From May 1 to May 2, abnormal demand for Stablecoin led to its decoupling from the dollar exchange rate (called depreciation). But if decoupling from the dollar for stablecoins usually implies a drop in the exchange rate. That’s what happened with the USDC during the Sillion Valley Bank crash in March. TUSD, on the other hand, was momentarily trading at a premium, hitting a high of $1.20.

How traders made money

The BTC/TUSD pair on Binance is now one of the largest trading pairs by volume in the entire industry. TUSD’s liquidity is not keeping up with its volumes. Which makes such a depeg more likely.

Traders have been using the decentralized Aave and Compound credit protocols. To borrow large amounts in TUSD. And quickly exchanged them for USDC, another stablecoin with a link to the U.S. dollar.

Aave and Compound are decentralized lending and borrowing protocols running on the Ethereum blockchain. Users of both can lend or borrow cryptoassets without intermediaries, using both stable and variable interest rates.

The most common strategy was to borrow TUSD and then exchange it for USDC. Which allowed us to effectively “short” TUSD from its increased price. However, neither Aave nor Compound has such large volumes of TUSD. Because of this, borrowing rates rose quickly, exceeding 100% per annum in both protocols.

TUSD demand rises

Speculation in the loan protocols is not the only reason for the increased demand for TUSD stablecoin. Our experts note that Binance has placed the highly popular SUI token on its Launchpool platform. At the same time, it gave users the opportunity to place BNB coins or TUSD stablecoins in staking, receiving income in the form of SUI tokens. Amid strong excitement, investors placed $4 billion worth of assets on the platform, with $770 million of that coming from TUSD.