Traders Attempt To Short TUSD Following Prime Trust Insolvency

Published on:

Traders are attempting to short the TUSD stablecoin amidst reports of the stablecoin issuer’s connection with crypto custodian Prime Trust.

The TrueUSD issuer has stated that it does not have any exposure to Prime Trust, having announced earlier in the month that it had stopped mints and redemptions through the crypto custodian.

Traders Hedge Their Bets

Traders are beginning to bet that the TUSD stablecoin could de-peg, putting the markets in crisis. One trader opened a multi-million short position on the TUSD stablecoin after its issuer stopped mints and redemptions through Prime Trust. A user on Ethereum deposited 7.5 million USDC as collateral on the Aave v2 lending platform. According to the available on-chain data, they then used this collateral to borrow 4 million TUSD and immediately sold these for USDC. Borrowing and then selling immediately is a common tactic used by traders who are looking to take a short position on a specific asset.

On Aave v2, traders are paying up to 50% APY to short TUSD, while the TUSD Curve Pool is also showing a similar trend, with its currency reserves reaching 61%. Twitter user Etheraltog also noted that users attempting to redeem TUSD are getting it re-minted into their wallets.

TrueUSD Tries To Clear Air

Traders are rushing to short the TUSD stablecoin after it emerged that Nevada’s Financial Institutions Division ordered cryptocurrency custodian Prime Trust to halt all operations. Nevada’s Financial Institutions Division stated that the custodian’s business had declined to a “critically deficient level” and was in an unsafe and unsound position to conduct business. Furthermore, the withdrawal of BitGo’s offer to purchase Prime Trust added further pressure on the custodian.

Read more:  Attempted Exploit of Bitfinex: Reported $15B XRP Transfer Revealed as Failed Attack

Representatives from TUSD have stated that the stablecoin is not impacted by the situation unfolding at Prime Trust and that it had no exposure to the embattled custodian. They added that TUSD maintains multiple USD rails for minting and redemption purposes.

Prime Trust has been looking to raise millions in emergency funding and had been in talks with a number of potential financiers. Executives at the custodian believed that funding of up to $25 million would be enough to stabilize the balance sheet. A deal with BitGo was announced for an undisclosed amount but was later canceled.

Volatility Hits TUSD

TUSD is usually a very stable asset. However, recent developments have seen the asset face considerable volatility, with its price falling as low as $0.995 and as high as $1.003. The volatility has also had a significant impact on the loan markets for the TUSD stablecoin, especially on Aave v2. Aave v2 is the largest on-chain lending facility for TUSD. According to data from Parsec, the variable borrow rate for TUSD was over 30%, although it was higher at one point during the day.

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