Traders Short TUSD Stablecoin After Prime Trust Halts Withdrawals

Traders are shorting TUSD as concerns mount that the stablecoin may again shed its dollar peg.

Shorts against TUSD have increased over time, and on June 21, one trader opened a $4M positions using the Aave protocol. A short trade is an investment strategy in which an investor sells borrowed assets with the intention of buying them back later at a lower price, aiming to profit from a decline in the asset's price.

This brings the total number of long positions just over $90,000 across AAVE and Fuse protocols, while short positions against the stablecoin lie just under $5M as per data from the Parsec crypto data platform.

TUSD slipped to as low as .9983 Thursday, a .17% drop from its $1 peg.

TUSD jitters began in early June after the Prime Trust exchange suspended deposits and withdrawals. TUSD issuer TrueUSD halted TUSD mints via the exchange on June 9. On two occasions—June 10 and 14—Coingecko recorded TUSD slipping as low as $0.993.

TUSD concerns come as stablecoins as a whole are facing heightened regulatory pressure from the SEC, according to a report by investment bank Berenberg. The report suggests that regulators could indirectly target DeFi protocols by focusing on dollar-pegged coins.

Mints Paused

“TUSD mints via Prime Trust are paused for further notification,” said a statement from TUSD on June 9.

In addition, Ripcord, a service that alerts users to issues with TUSD reserves, showed discrepancies in the funds.

A discrepancy on June 20 occurred “due to a delay in one of the new banking partner's API interface, which prevented the auditor(TNF) from reading the bank's latest escrow balance,” according to a Twitter thread from TrueUSD that went on to say “TUSD is 100% reserved and the attestation report is live again.”

Contributing Factors

“The catalyst is all of the news around TUSD and Prime Trust, who had to halt deposits/withdrawals,” Parsec founder William Shehan. Sheehan told The Defiant, adding, “They [TUSD] claim otherwise.”

The exchange, which closed a $100M Series B round last June, faces pressure from Nevada state regulators, who on Thursday issued a cease and desist order that prompted the exchange to freeze withdrawals and deposits. The SEC said Prime Trust is closely connected to Binance in a lawsuit the agency filed against Binance last week.

Binance started to favor TUSD following a regulatory crackdown on its own BUSD token earlier this year.

NY Orders Paxos to Cease Issuing Binance USD

CZ Says Paxos Will Service BUSD to Manage Redemptions

The Defiant

Rival firm BitGo's acquisition of Prime Trust fell apart amid regulatory pressures and Prime Trust's inability to meet BitGo's terms.

Parsec data shows $17.6M TUSD borrowed on AAVE, which compares with a $3.1B TUSD total market cap.