When a sudden event occurs, how can one effectively hedge against USDT risks on-chain?
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When a sudden event occurs, how can one effectively hedge against USDT risks on-chain?
Cryptocurrency analyst Thor Hartvigsen explains in this article how he used an on-chain short strategy to hedge his USDT risk.
Navigating Web3 tides with focused insightsAuthor: Thor Hartvigsen
Compiled by: TechFlow
USDT's share in Curve's 3pool has now exceeded 70%, raising concerns among some. Is there a real problem, or is this just baseless panic? And what can we do to minimize risk in case of an emergency?
In this article, crypto analyst Thor Hartvigsen explains how he hedges his USDT risk using on-chain shorting strategies. Let’s take a look at his specific approach.
USDT currently accounts for over 70% of assets in Curve’s 3pool—Is this unfounded fear, or do large institutions know something we don’t? I don’t want to take that risk, so I’ve taken out an on-chain short position on USDT as a hedge.
Curve is the primary venue for stablecoin swaps due to its deepest liquidity. When the Curve 3pool becomes imbalanced, swapping becomes more difficult and incurs higher slippage. What we're seeing now is people selling off USDT.
If you want to convert USDT into another stablecoin, you have several options such as USDC, DAI, FRAX, or decentralized alternatives like LUSD.
You can also easily short USDT on-chain:
• Go to lending markets like Aave or Radiant (RDNT Capital).
• Deposit a less volatile collateral, such as USDC or another stablecoin that isn't USDT.
• Borrow USDT against that collateral.
• Convert the borrowed USDT into other stablecoins.
• You can also use leveraged short positions for hedging.
If USDT depegs, you can repay the loan and profit from the difference. On Ethereum mainnet’s Aave, the annualized borrowing rate for USDT is around 2%, but on Arbitrum it reaches up to 20%. On Radiant, the borrowing fee is 10%, but free if you qualify for $RDNT rewards.
Do I think USDT will depeg? Honestly, I don’t believe so—but the issue is, I don’t know what’s happening behind the scenes. Since my funds are already on Radiant, executing this short hedge costs me nothing.
Note: This article only presents an idea for shorting on-chain and does not constitute financial advice. All content is created by the original author and does not represent the views of TechFlow.
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Thor Hartvigsen
