TUSD Lending Rates Spike After Stablecoin Briefly Rallies To $1.20

Opportunistic DeFi traders pushed lending rates for TrueUSD, the centralized stablecoin favored by Binance following a regulatory crackdown on its own BUSD token, well into triple digits after TUSD suddenly rocketed to $1.20 on Monday.

According to data from Kaiko, TUSD briefly surged to $1.20 on Binance while trending closer to $1.03 on rival exchanges. DeFi traders raced to take advantage of the situation by borrowing TUSD from Aave and Compound, the top DeFi lending protocols. They planned to swap the overvalued TUSD into other stablecoins and wait for it to retreat back to $1 before repaying their loans, but the surge in borrowing demand pushed interest rates above 100%.

“Binance has recently been promoting TUSD, making BTC-TUSD the only zero-fee pair on the exchange [and] one of the highest-volume pairs in all of crypto,” Kaiko said. “TUSD liquidity has not kept pace with its volumes, making a depegging like this more likely…Neither Aave nor Compound has a large supply of TUSD, which meant that borrowing rates quickly surged.”

‘Unstablecoins’

The news comes as the stablecoin sector is still finding its feet after a brutal year. In May 2022, the failure of Terra amid the depegging of its algorithmic UST stablecoin sent the broader crypto markets into free-fall after $44B was wiped from the ecosystem over 10 days, according to CoinGecko.

In February, New York regulators ordered Paxos to stop issuing Binance’s BUSD, then the third-largest stablecoin with a market capitalization of $16B. TrueUSD was a major beneficiary of the action against Paxos. Its market cap rocketed from $970M on Feb. 27 to more than $2B — where it has steadily remained since.

USDC, the second-largest centralized stablecoin, also suffered a crisis of confidence after Silvergate Bank and Silicon Valley Bank went under in March. Skittish traders rushed to offload their USDC, pushing its price down to $0.88 and wiping more than $7B from its market cap.

DAI, MakerDAO’s decentralized stablecoin, also crashed below $0.90 as investors sought to minimize contagion risk from DAI being heavily backed by USDC.

SUI Farmers Siphon TUSD Liquidity

Binance’s Launchpool campaign for the SUI token also contributed to the TUSD liquidity crunch. Sui is a Layer 1 blockchain that launched its mainnet today.

The token launch began on May 1 and allowed users to earn SUI by staking TUSD or BNB. On Monday, participants had staked roughly 22% of TUSD’s supply on the Launchpool platform. The campaign ended on Wednesday, coinciding with the mainnet launch.