December 9, 2023

Traders are attempting to short the TUSD stablecoin amid reports that the stablecoin issuer has ties to cryptocurrency custodian Prime Trust.

The TrueUSD issuer said it has no exposure to Prime Trust and announced earlier this month that it had stopped minting and redeeming through the cryptocurrency custodian.

Traders hedge their bets

Traders are starting to bet that the TUSD stablecoin could be de-pegged, throwing the market into crisis. A trader opened a multi-million dollar short position on the TUSD stablecoin after the TUSD stablecoin issuer stopped minting and redeeming through Prime Trust. A user on Ethereum deposited 7.5 million USDC as collateral on the Aave v2 lending platform. They then used this collateral to borrow 4 million TUSD and immediately sold it for USDC, according to available on-chain data. Borrowing and then selling immediately is a common strategy among traders looking to take a short position on a particular asset.

On Aave v2, traders are paying up to 50% APR to short TUSD, and the TUSD Curve Pool is showing a similar trend with 61% of its currency reserves. Twitter user Etheraltog also pointed out that users trying to redeem TUSD are being reminted into their wallets.

TrueUSD tries to set the record straight

Traders rushed to short the TUSD stablecoin after the Nevada Department of Financial Institutions ordered cryptocurrency custodian Prime Trust to cease all operations. The Nevada Department of Financial Institutions said the custodian’s operations had fallen to “significantly inadequate levels” and that it was not safe and sound to conduct business. Additionally, BitGo withdrew its bid to acquire Prime Trust, further adding to the pressure on custodians.

A representative for TUSD said the stablecoin has not been affected by what happened with Prime Trust and has no relationship to the troubled custodian. They added that TUSD maintains multiple dollar tracks for minting and redemption purposes.

Prime Trust has been looking to raise millions of dollars in emergency funding and has held talks with some potential financiers. The custodian’s executives believe that funding of up to $25 million is sufficient to stabilize the balance sheet. A deal with BitGo was announced for an undisclosed amount, but was later called off.

Volatility hits TUSD

TUSD Usually a very stable asset. However, recent developments have shown that the asset faces considerable volatility, with its price falling as low as $0.995 and as high as $1.003. Volatility has also had a major impact on the lending market. TUSD Stablecoins, especially Aave v2. Aave v2 is the largest on-chain lending tool for TUSD. According to Parsec, TUSD’s variable borrowing rate was over 30%, although it was higher at one point during the day.

Disclaimer: This article is for informational purposes only. It does not provide or be intended to be used as legal, tax, investment, financial or other advice.