TUSD Lending Rates Surge as Stablecoin Briefly Rallies to $1.20!

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

TUSD momentarily soared to $1.20 on Binance while drifting closer to $1.03 on competing exchanges, according to Kaiko statistics. DeFi traders rushed to capitalize on the situation by borrowing TUSD from the leading DeFi lending protocols, Aave and Compound. They intended to exchange the inflated TUSD for other stablecoins and wait for it to fall to $1 before repaying their debts, but the rise in borrowing demand drove interest rates past 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,” added Kaiko. “TUSD liquidity has not kept pace with its volumes, increasing the likelihood of a depegging like this…Because neither Aave nor Compound has a large supply of TUSD, borrowing rates quickly rose.”

The announcement comes as the stablecoin industry struggles to recover after a difficult year. According to CoinGecko, the collapse of Terra during the depegging of its algorithmic UST stablecoin in May 2022 drove the larger crypto markets into freefall as $44B was wiped from the ecosystem over 10 days.

Paxos was forced by New York authorities in February to cease producing Binance’s BUSD, the third-largest stablecoin with a market valuation of $16 billion at the time. TrueUSD benefited greatly from the move against Paxos. Its market worth soared from $970 million on February 27 to more than $2 billion, where it has stayed since.

USDC, the second-largest centralized stablecoin, also had a trust issue after the failures of Silvergate Bank and Silicon Valley Bank in March. Fearful traders hurried to sell their USDC, driving its price down to $0.88 and wiping out more than $7 billion from its market worth.

DAI, MakerDAO’s decentralized stablecoin, also fell below $0.90 as investors tried to mitigate the risk of DAI’s reliance on USDC.

Binance’s Launchpool SUI token campaign also contributed to the TUSD liquidity crisis. Sui is a Layer 1 blockchain that has just released its mainnet. On May 1, the coin became life, allowing users to earn SUI by staking TUSD or BNB. As of Monday, participants have staked around 22% of the TUSD supply on the Launchpool platform. The campaign concluded on Wednesday, coinciding with the opening of the mainnet.