USDT might collapse soon, any plans to make curve less reliant on it?

I know there has been FUD about USDT for the last 2 years. So I’ll keep it short, 2 things are different this time

  1. They have to provide all docs US authorities requested by 15th Jan and this time there is no extension
  2. They’ve been printing USDT at unprecedented scale
    (for full details read those 2 twitter threads:
    https://twitter.com/pat_jane_crypto/status/1344673896675618818
    https://twitter.com/pat_jane_crypto/status/1346118494115524609
    )

We all know they are shady and the least reliable stable coin, so are there any plans to make curve less reliant on USDT?
Right now there is only 1 pool that doesn’t have USDT involved either directly or as part of e metapool.

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I am also quite curious about this, if Tether does take a beating what will that mean for curve?

Almost all stablecoins LPs will be at 100% loss (there is only one pool without USDT) and the PR crisis will be hard if not impossible to recover from.

Hey there,
I am also concerned about USDT failing (failing meaning it will be worth close to 0, not decoupling from the USD).

In short: If it fails, ETH, all other stablecoins and probably also BTC (because it is on Ethereum) are gonna crash like 90% or more.

Why: Because of a feature why DeFi works. Interoperability. If USDT goes to 0 it would drain like all Curve pools, all Uniswap or Sushi pool with a stablecoin and therefore also other stablecoins would loose their peg.
USDT cant fail and that is the reason why people say: “Dont put your live savings into crypto”, because there is a real chance that this all goes to 0.

Do I believe that it will go to 0? I am not sure, it is a risk and according to this risk you should choose your exposure to crypto.

Is there anything which supports Tether not going to 0?

  1. Maker risk assessment on USDT when they added it as collateral for DAI
    https://forum.makerdao.com/t/usdt-pax-collateral-onboarding-risk-evaluation/3723
  2. Tether Transparency Report shows their assets
    Transparency Dashboard
  3. And the information we have from ongoing or past lawsuits:

In 2019 the New York Attorney General’s (“NYAG”) office filed a suit alleging that Bitfinex used Tether reserves to cover $850 million in lost customer funds. Bitfinex claimed that Crypto Capital, a financial services firm offering shadow banking services for several cryptocurrency businesses, defrauded Bitfinex out of the $850 million. Court filings revealed that, consequently, Tether only held $2.1 billion in cash and cash equivalent securities. This figure implied that each USDT was backed by only $0.74 instead of a full $1. In the weeks following the NYAG’s filing, Bitfinex conducted a $1 billion token sale for LEO, the proceeds of which, we presume, went to pay back the Tether reserves.

–> so I think they are really backed by USD. Because they had been and probably filled the gap they had up with the money from the LEO token sale. Whatever they did in the past, I think it is today much more profitable to offer the services Tether offers, than to Scam and bring this all to a crash. The people involved in Tether are probably themselves deep into crypto and wouldnt want it to fail anymore (even if when they started, they didnt know how big Tether would get).

In conclusion: In my opinion there are substantial risks. Everyone should position themselves accordingly. It is not a meme, if people say “Dont put in crypto more than you can afford to loose”, because there is the real risk to loose everything.

On the other hand, it is also an opportunity and there should be enough incentives on all sides, to not let Tether collapse, including regulators (unless they choose to be anti innovation and give this field over to other juristications, like China or Europe). Overall it would be good to deleverage the usage of USDT in the DeFi ecosystem overall and use more coins like USDC, PAX, DAI, sUSD or even some of the newm algo coins like ESD or DUSD to decrease overall risk.

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Their transparency reports are a joke though. Last audit was from 2018 and even that is very questionable. Actually they never had a proper audit.
Those balances that they publish on their site mean nothing. Literally nothing.
Something very bad can happen on 15th or nothing if it’s for some reason post poned again.
Either way it will happen eventually and it’s better we are prepared. There much better alternatives to tether now, so lets start using them more.

For start we can do more non-usdt pools to give the risk averse people the option.

That is what I also recommended… using the alternatives to USDT. But if USDT fails and goes to zero it will bring down all of Defi and Ethereum with it. And probably what will be left of it, wont recover. At least not on Ethereum… so there is little done to mitigate risk on Curve pools alone. And at least they have a transparency report…

What pools should we vote in to start to derisk USDT then? We would need a replacement for 3pool ideally?

I would recommend Dai, USDC and sUSD as they seem to drive the most volume these days though the use of USDT as collateral for Dai is concerning. I have just checked however and only $1000 usdt currently has been used to mint Dai, presumably owing to the fact it’s stability fee is 8% compared to other stablecoins at 0%.

yeah and also the ceiling for borrowing against USDT is set to 1 or 3M so that is ok even if not ideal (im talking about makerdao)

until USDT is part of 3pool, and 3pool is part of everything else Curve is super exposed.
Im not sure if it doable to remove USDT from 3pool at this point though?

No I am suggesting a new pool, that way those who don’t want USDT exposure can vote for it in the gauge and show the interest for such pools by being part of one. Unfortunately USDT is quite ingrained in the markets so we would still need other pools trading in it still.

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  • ALL stablecoins present a risk of depeg. This risk is not specific to USDT

  • If you, as a liquidity provider are uncomfortable with the risk of a specific asset, you need to take steps to mitigate your exposure (borrow USDT and supply to Curve, for example)

  • We shouldn’t be reworking pools to make LPs feel more comfortable with their exposure. Risk management is their responsibility and pool APY is priced to account for perceived risk of the pool. Primary concern should be satisfying the market’s demand for stables people want. For better or worse, USDT is high demand.

  • Insurance products arent coming quickly enough, but they are coming. LPs will have more options to hedge their risk against stablecoin exposure. This is the better option rather than compromising pool quality for the benefit of LPs.

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Actually that seems fair, any ideas where is best to borrow USDT?

Some stableswap protocols try to prevent complete drain of pools in case of catastrophic loss of peg by placing limits on the number of units of each stablecoin. So a pool cannot have, say, less than 3% and more than 50% of USDT.

Does Curve have anything like that in place? If not, do you think it could be an improvement?

Aave

Circuit breakers and other ways of limiting trading during a severe depeg event have been discussed. There isn’t any protection in place now, and the general consensus I’ve seen is that these types of protections wouldn’t be able to react fast enough to prevent losses and are not a good idea to implement. If there is some good solution, I haven’t see one proposed, but maybe it’s one of those problems that’s waiting to be solved?

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Depegs have a slightly lower effect if the amplification coefficient is lower but if it’s a serious depeg that won’t make that big of a difference.

Best thing you could do is to have short exposure to USDT by borrowing it.

The concern is real as ever. For this reason, among others; we have proposed a Dai/sUSD curve pool. Having Aave tokens in the pool for better capital efficiency.
Let me know your thoughts and if you like it please vote in favor!

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the cmp pool doesn’t have USDT. Maybe rebalance there if you are worried ?

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USDT hedge on AAVE

Deposit USDC on AAVE
	Then
Borrow USDT on AAVE
	Then
Swap USDT to USDC
	Then
Deposit the USDC on AAVE

If USDT loses its peg your USDT debt will go down and you basically making a profit in USDC.

what’s the total cost of this? (interest paid)

opium now has a USDT insurance product. https://opium.finance/insurance
looks like it is charging ~5% annual interest atm, although it’s very new so maybe that will change a lot

Seems relevant to the topic at hand https://decrypt.co/55042/tether-is-fully-backed-by-us-dollars-says-deltec-deputy-ceo