Will the collapse of the Stabilitycoin USDT mark the end of the DeFi world?

Tie risks are still starting to emerge, and there are fears that DeFi, which has traditionally been backed by stable gains such as USDT and USDC, may collapse.

In fact, the DeFi field is getting even more attention than yesterday, but after booming growth, a stable currency like the USDT is the primary support. DeFi has been hit badly by the entire cryptocurrency industry.

Next, let's dig deeper into the reasons why the collapse of stablecoins such as USDT and USDC is crucial to ending DeFi globalization.

If financial management is an equal responsibility, then you can think of it as a rebel conquering the world, especially a rebel overcoming a financial problem. Then we can think of another group of traitors as being the best project in the business yet. So your two fists can be Uniswap and Curve, these two trading options allow people to invest in multiple strategies and quickly trade them when one idea is gone and the other is gone as a promise. . for

Simple financial instruments such as Compound, Synthetix, Cover and dYdX can become weapons that strengthen our armies by allowing people to perform financial tasks that can be identified in the classification. Ethereum itself is true of the mind, and long-term games (such as Yearn, Convex, and Index Co-op) can be thought of as left-brained, while NFTs and crypto-carnivals (eg Jay Pegs Auto Mart) can be thought of as a brain. . .

But what about the legs? If the pillar of this project breaks, our troops will fall to the ground.

capacity is low

In the current market, we clarify that the Financial Instability (DeFi) branch is governed by two central commodities: tokens supported by fiat currency, USDT, stable bonds of Tether and USDC, stable bonds created by Circle and Coinbase. You can say.

Stablecoins are cryptocurrencies created to control the simulated world (usually US dollars) and similar currencies (or “processes”). These two fixed coins have promised to accomplish this by creating new tokens from USD deposits and withdrawing USD tokens from their bank accounts at every consumer request.

In addition to these two stablecoins, DeFi now has many other weaknesses, such as oracle control, attack control, and virus transmission, but who finds a black swan that could disrupt a $ 250 billion market should be close. Pay attention to the best stability pieces.

For example, Arjun Buptani of Connext Network described the simple situation where the USDT lost its peg to the US dollar due to the uncertainty of its weight. A traded exchange that held it in place could collapse and lead to huge losses due to the reluctance of investors to withdraw from financial service providers and investors attacking them for arbitrage. Investment contracts that are based on portfolios such as Annual and StakeDAO can result in capital losses.

Arjun Bhuptani, Founder of Connext, once said he was very concerned about the possibility that stable parts could still be discovered due to anchoring, missing or with inadequate materials. For example, if the USDT is killed, most DeFi can be destroyed, and this could be the DeFi version of the situation unlike the 2008 financial crisis. Most of the income or expense of the set of the DeFi sector can be rejected. However, Bhuptani admits that this is only a hope and that no one knows the truth.

Rafaella Baraldo, founder of hedging platform Pods Finance, said there is no precedent for a recession like 2017 in the DeFi ecosystem. The closest economic decline was March 2020. Until then, the ecosystem is now very different. The use of chains is increasing and the process depends on each other.

Or, like Boring Crypto, an anonymous programmer creating SushiSwap, BentoBox and Twitter DM loans said that under some unfortunate circumstances all of these cards are business cards.

Not everyone is afraid. Michael Feng, CEO of the Hummingbot trading platform, CoinAlpha, says the USDC and USDT are not dangerous. He wrote that “These devices are simple, backed by liquid devices like Bitcoin and the US dollar, and will be strictly monitored by regulators,” he wrote. "It's not a real danger.

Not everyone is afraid. Michael Feng, CEO of CoinAlpha, the company behind the Hummingbot trading platform, wrote in an email that the USDC and USDT are not in danger. Loans are subject to strict control by regulators and do not constitute a real risk appetite.

USDT concerned about resolution

By law, two fixed coins are regulated (requires police to censor or censor special users), collateral risks (asset recovery, lost stability coins or loss of public confidence) and security (stolen goods). Warning).

However, most people are concerned about the USDT solution and USDC compliance. This is especially dangerous in cryptocurrencies, because if something goes wrong all the technology will fail with the end result, for example when something has been accomplished.

Hart Lambur, co-founder of UMA, says the problem is that DeFi has no way of anything and no “cancel button”. A system that can be measured with data if there is no way to “recover” it when disaster hits a trillion dollar machine.

Imagine that our rebels immediately fought on one leg. In times of austerity, this could be a bad example for the USDC.

USDC is a token in the DeFi field. According to Flipside Crypto, TVL has been the most popular fixed income platform on DeFi since October 2020.

DeFi executives were concerned that the board of directors would use two US companies after the USDC to create violence against DeFi, and they could. USDC is usually a work in progress and the company has no idea what to do with its finances. Founder Jeremy Allaire tried to fit cryptocurrency into market costumes long before the cycle began to produce its first products. for

Electric Capital Managing Partner Aichal Garg believes that a strong USDC account could lead to DeFi, as much as ultimately seeking the validity of the USDC, DAI, and the equivalency of multiple pools of LP. .

Strong money is unprecedented. The question is whether this will be done on a large scale.

Center is an organization created by Coinbase and Circle to run their products. Jessica Gardner, Group Business Advocacy Group, issued a statement: The Disclaimer Access Policy is intended to comply with any law, regulation or policy of a government agency authorized in the Center, or to avoid jeopardize the security and fairness of the USDC. network. Or in extreme cases, trust is a threat.

major vulnerabilities

In DeFi, the USDC is huge. Uniswap, for example, is DeFi's gateway. USDC is the app's second largest token after ETH. As of November 18, of the $ 3.9 billion, $ 581 million had been traded on the exchange, but it would not be Uniswap's largest USDC. The facts matter.

USDC has combined other tokens with TVL for over $ 1 million in 64 mining pools. At one time, almost 400 pools had USDC, and many pools were minimal.

Of course, ETH is combined with multiple tokens and has 189 token pools with a face value of over $ 1 million, but Uniswap, the second most liquid token, WBTC, only has 10 token pools of. 'a face value of over $ 1 million. $ 1 million. USDC also accounts for $ 3.5 billion of the $ 18.4 billion in assets in the currency market. According to The Defiant Terminal, Aave's USDC is estimated at $ 538.5 million (about 4% of total lockdown costs), Curve is about $ 138 million (about 9%) and Maker is about about $ 240 million (about 4%). . SushiSwap is around $ 196 million (around 5%) and Uniswap is around $ 776 million (around 9%).

For a while, USDC has been a major weakness of DAI (the most popular decentralized Stabilitycoin). In March 2020, USDC handed a significant portion of the blame to DAI when MakerDAO was funded and the short-term system was worth millions of dollars over DAI insecurity.

rules cannot be controlled

However, according to DAI statistics, as of November, USDC has made up 12% of underlying DAI products, ETH once held the largest holdings, and WBTC also has the upper hand.

However, the loss of confidence in the USDC is detrimental to DAI and DeFi in any way. And if the USDC were to improperly create crypto, it would usually be through prior legalization, as required by law. Baraldo said the unplanned review could affect DeFi contracts in ways we don't yet understand. This reflects the concern of many leaders.

We don't know how far they'll go or USDC officials will follow the rules until the police intervene. This can vary depending on whether the administrator wants only some of the credible wallets to freeze or go further and orders a freeze of the USDC that went into the credible wallets. . When this happens, millions of USDC will immediately lose capital in smart contracts.

Garg said the USDC freeze meant that many DeFi USDCs froze, but since no one knows where they are, everyone started trying to take USDC out of the bank.

The CEO of the Cercle Jeremy Allaire

Curve founder Michael Egorov said he didn't have to worry about the review and that when USDC or USDT needed to do something to comply, it would affect their implementation, but would not lose their support. useful.

There may be more issues in the long run. USDC is affiliated with Coinbase. Together they are considered a legal, administrative and “secure” means. If the USDC considers it unreliable, the average person will be more cautious at this point for a longer period. Lisa Jy Tan of Business Development said this has affected long-term confidence in some major industries. In the long run, this will reduce the need for encryption and DeFi.

Very important

Of course, anyone can have leg issues all the time, and the USDC will be gone, but many are worried about whether Tether will be able to outperform its competition. In the event that one wants to see, the legs of the fighter, lose all strength or quite simply are amputated.

The main concern of the USDT is that all the rumors about its resolution are true and the market is finally convinced. Tether is believed to have insufficient assets to fund Tether's current $ 73 billion. In October, Tether paid $ 41 million to settle a complaint filed by the Future Commodity Exchange alleging it sponsored all tokens as fiat currency.

Bhuptani said he was very concerned about the possibility of large stablecoins not being indexed, no liability slippage or insufficient items being found. For example, most DeFi can be destroyed while running on USDT. It is not a step forward. When they arrive, they arrive at the same time.

Since Bitcoin's liquidity is dependent on USDT, failure of USDT and DeFi will affect all blockchains like new cracks in a broken window. Cowri Labs CEO Kenny White said the key to determining whether bad currency is problematic or expensive is whether the value of ETH, BTC and other cryptocurrencies has fallen. The hunch is that many models are likely to underestimate the height of the relationship.

As BTC improves, other market gains may change as well.

White first describes "failure" as a permanent missing fund, arguing that we should try to define the meaning of failure in this context. At worst, Stabilitycoins lose value. Stablecoins can be created in several ways. If Tether fails, at least the value of BTC, ETH, and all other cryptocurrencies will suffer. And maybe an exchange in the middle will fall.

Important DeFi Certificate

In fact, at the enterprise level everything is interconnected, while in DeFi everything is programmatically connected. Let us give a specific example. Curve is a decentralized exchange, especially in the stable range.

As mentioned before, Curve is a very important contract for DeFi revenue generators. Stablecoins depend on it to promote liquefaction. Gross income depends on it to earn income. If a large fixed amount goes to the problem, it will increase the number of curves and all related operations. for

Bhuptani said that, for example, if the USDT was not pegged tomorrow, all of the USDT's commodities in the stock market would explode because Tether would have no money because it only held 20% of its assets.

Curve is designed to be flexible. Curve uses swimming pools to improve water quality. So, although most Uniswap mining pools are pools of two tokens, those tokens are dedicated to mining pools, but Curve uses a combination of internal tokens. Most Curve Lakes are a pair of tokens with different lakes, and for stable coins there is DAI, USDC, and USDT. So any issue with stable coins will immediately spread to many other ponds.

no protection

White says other pool media with stable LP tokens can fail as well. Thus the simplest the most curved can only be done if there is a bottom which freezes the swimming pool and stops the operation. for

Curve founder Michael Egorov has sworn that a massive cryptocurrency crash could have far-reaching consequences. There really isn't any protection there, and a lot of mining pools rely on stablecoins.

White said contracts like Year can lose money if most of Curve's TVLs disappear overnight. Of course, all contracts with Yearn will be affected.

Tan explains that it's hard to predict what's going to happen. Next question: Are people pulling out of cryptocurrencies or pulling out of cryptocurrencies? Tan said if they pull out of cryptocurrency volumes, the price could become "worrisome" as demand has pushed the small price to stability and deal after being attempted when the weather is not stable. . Lower prices.

cryptocurrency central bank

We don't know how people and contracts will react in this turbulent new economy. The MakerDAO management representative also reported other issues.

PaperImperium says the medium-term bank will temporarily change interest rates when it lends fiat loans. Usually it doesn't work, but it does happen. If the central bank did this, it's not hard to imagine that this cryptocurrency central bank would one day fall into the same trap. If Tether, USDC or DAI decides to lower the market interest rate on the token, it will eventually run out of savings to protect the anchor for open trade / redemption.

Here is how it works in a very simple way: If you want to see more business for a fixed amount of money, a mortgage like Aave can offer a lot of money to reduce your mortgage debt. If you do enough, the number of tokens in the market may eventually start to drop below the anchor prices as the market will exceed expected numbers.

The stable value supported by fiat protects the exchange rate at all times by allowing users to withdraw fiat at the exchange rate. So if the USDT does that and Tether costs around $ 0.97, then the Chief Justice can easily withdraw the $ 300,000 winnings by buying $ 10 million in USDT and trading US dollars.

The problem here is that if you constantly lower your mortgage rates, you will lose your assets. It may or may not be important. Finally, if done correctly, the tokens will be burned upon redemption. However, in this case, the financial control will be removed.

real violence

It is important to remember that there is a real threat, but the real danger will be easier. Whether it's fully entrenched or regulators are trying to put the brakes on DeFi.

It should be noted that cryptocurrencies behave differently from the traditional market and will behave in times of crisis. Feng of Coin Alpha said the cryptocurrency is less risky than traditional currencies because it has more holders. Unlike traditional financing, where the US government can play a major role, few institutions are strong enough to avoid losing money.

However, it is important to note that the DeFi app is very interactive. So fixing the entire DeFi as a Rebel Trooper helps, but there are a few good tools and versions to be effective. However, they also have a relationship, like any other body, damage from one part can spread to another.

DeFi configurability is good, Bhuptani said, but that means every building block continues to benefit from the risks of the base block. Or maybe it's not an easy block. Probably the block above. If two large pieces of stable with fiat backs were the bone of a true company, the departure of a "bridge" would fall on even the most intellectual.