Between Friday and Saturday you will have experienced the moments of terror as the stablecoin depegged to $0.88. The bad days of Ust immediately came to mind. Basically some USDC collateral (3.3B fiat) stuck on (failed) Silicon Valley Bank. Silvergate Exchange that allowed exchanges has failed, COINBASE has blocked USDC / Usd conversions until Monday because banks are closed on weekends.
In the general chaos USDC dropped to $0.88. Along with it, DAI, FRAX, MIM, USDD and SUSD all also lost the peg. DAI because it is overcollateralized by USDC. FRAX and MIM because they are hybrid models between algorithmic and collateralized stables. USDD and SUSD (Synthetix Network's stablecoin) for the big dump of TRX and SNX.
Who came out strong? USDT is trading at $1.01. BUSD kept the peg at $1 (I remind you that in 1 year it will no longer be tradable).
However the next day the FED announced that it would help the debtors of these banks (including the Circle) so USDC almost returned to the peg and the crypto market quickly rebounded with a mega-pump (while other banks went bust, including Signature ).
During the chaos, on many lending platforms, USDT APR borrowing had reached over 100% (because it was being borrowed. The various platforms incentivize/disincentivise borrowing based on demand, via interest rates).
Let's see some strategies that can be used in these cases, if in the future another stable loses the peg! Please study and don't apply these strategies if you don't understand them!
STRATEGIES DURING THE DEPEG
If you think USDC/USDT > 0.82 by maturity ~ lend USDT into the pool or long USDC by borrowing USDT and swap to USDC & repeat (leverage loop)
If you think the value of USDC/USDT will be greater than 0.82, you can choose to lend USDT into the pool or buy USDC by borrowing USDT and then exchanging USDT for USDC, then repeating the transaction. In this way, a leverage effect can be obtained, i.e. an increase in the potential gain or loss, depending on the market trend.
If you think USDC/USDT <0.82 by maturity ~ borrow USDC and sell for USDT
If, on the other hand, you think that the value of USDC/USDT will be less than 0.82, you can choose to borrow USDC and then sell it for USDT. In this case, it is hoped to profit from the price difference between the two tokens.
Leverage long/short USDC with no liquidation
This means that you can choose to buy (long) or sell (short) USDC using leverage with no liquidation risk. It is possible to trade with a position greater than the available capital, without the risk of having losses.
Fixed, double-digit yield for lending USDT
This means that you can earn a return by lending USDT to other traders or investors, so you can earn interest on your capital without having to actively trade. This type of strategy is a form of "lending", i.e. lending a cryptocurrency to others in exchange for a return (on Aave the APY for depositing USDT had reached over 100% return).
Put USDT as collateral, borrow USDC and sell it on market for USDT, and put back USDT in, do in 20 times and you'll have a chance to do 4x. At worst it pegs and you'll pay some APY. Don't forget to take the loan with stable APY though, because as soon as depeg is defined, APY will skyrocket for your debt.
This strategy is based on taking advantage of the loss of the USDC peg against USDT (i.e. USDC is worth less than $1), to make a profit.
The strategy is to borrow USDC at a fixed interest rate, using USDT as collateral. Next, USDC is sold in the market to get more USDT than is deposited as collateral. At this point, the USDT obtained is used to repay part of the loan in USDC, thus reducing the amount of debt.
The strategy involves repeating this operation several times, until the USDT obtained from the sale of USDC does not exceed the amount of debt. This way, you will make a profit.
Deposit USDC, borrow USDT, sell USDT for USDC, repeat
If USDC repeg you get the arbitrage minus the APY you paid for borrowing.
The strategy described involves the use of USDC and USDT, with the aim of exploiting the price differences between the two cryptocurrencies to make a profit. It assumes that USDC has lost its peg to the dollar and is therefore trading at a discount to USDT.
The basic idea is to deposit USDC, borrow USDT at a lower interest rate, and then sell the USDT to get more USDC. The process is then repeated to maximize profits.
However, there are some risks and considerations to keep in mind: there is no guarantee that USDC will remain at a discount to USDT and then return to the peg.
Suppose USDC is trading at $0.98 and USDT at $1.02. Further, suppose the interest rate for borrowing USDC is 10% per annum and the interest rate for borrowing USDT is 5% per annum.
-Deposit $1,000 in USDC
-You will receive 1,020.41 USDC (1000/0.98)
-Borrow $1,020.41 in USDT
-You will pay 5% annual interest, equal to $51.02 (1,020.41 x 5%)
-Sell USDT to get more USDC
-You will receive 1,000.39 USDC (1,020.41 x 1.02)
-Repeat the process
-You can now re-deposit the 1,000.39 USDC and borrow more USDT to continue seeking arbitrage opportunities
If USDC returned to its peg to the dollar, your profit would be equal to the difference between USDT's buying price and USDT's selling price, minus the cost of the interest you paid to borrow USDT. However, if USDC fails to return to its peg, you could suffer losses instead of profits.
I remind you that the example of USDC losing its peg was given, but these strategies can be used for any stablecoin, obviously changing the names (depegged stable instead of USDC). If you find any mistakes, let me know in the comments.
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