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With $USDT trading below $1, the sudden small de-peg of $USDT from the dollar creates an arbitrage opportunity for traders, either betting further depeg or betting the dollar peg will recover.
One notable case of betting further de-peg was an Ethereum address known as czsamsun.eth, who, using 17,400 ETH ($28 million) and 14,690 stETH ($24 million) as collateral, borrowed $31.5 million USDT from Aave 2 and exchanged it for 31.47 million USDC at a rate of $0.997 on Curve.
At the same time, someone is betting the dollar peg will recover. An address 0xd2, capitalized on the USDT de-peg in a big way. This address deposited 52,200 stETH ($85 million) through Aave V2 and borrowed $50 million USDC, swapping large sums of USDT at a discounted rate in batches.
Here, the trader took advantage of the lower price of USDT to buy large quantities using borrowed USDC, which was still holding its 1:1 peg with the US dollar. In theory, if USDT returns to its 1:1 peg, the traders can sell their USDT at a profit, repay their borrowed USDC and pocket the difference.
In response to this sudden demand for USDT loans, Aave’s algorithmic model automatically adjusted its rates to maintain market equilibrium. The result was a significant rate hike, with the deposit rate soaring to over 15% and the borrowing rate increasing by over 25%.
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