TUSD Depeg: On-Chain Short Selling and AMM Arbitrage
Summary
The commentary examines TUSD trading away from its dollar peg and describes how traders used Aave borrowing to establish short positions. They borrowed TUSD, sold it on centralized or decentralized exchanges, and could later buy it back at a lower price to repay the loans. The reported on-chain data show a large increase in borrowing before the first major depeg, with additional borrowing for short sales later in the episode. The article also notes that TUSD subsequently traded above its target, raising the possibility of a convergence trade if the peg is restored.
It explains how an automated market maker’s reserve mix affects its quoted price: selling TUSD into a pool adds to its reserves and pushes its relative price down. Arbitrageurs bought TUSD on cheaper centralized venues and sold into a higher-priced Curve pool, helping close the price gap. The episode followed concerns about the issuer’s custodian; the article reports later reassurances and a price stabilization near the peg. It documents a particular market event, not a general guarantee that pegs recover or that shorting costs and liquidity risks are manageable.
Key ideas
- Traders borrowed TUSD from Aave and sold it short during the depeg.
- On-chain borrowing data showed activity before and after the initial price dislocation.
- AMM prices respond to the relative token reserves in their liquidity pools.
- Cross-venue arbitrage trades helped bring a higher-priced Curve pool closer to centralized market prices.
- The account describes one depeg episode and does not establish that future peg recoveries are assured.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.