True USD Faces Liquidity Challenges Traders Take Analysis of Stablecoins

Author: MICHAEL BODLEY & BESSIE LIU, blockworks Compiler: Jinse Finance, Shan Ouba

As short interest grows, traders say they are analyzing the liquidity and pricing of the stablecoin True USD.

The True USD (TUSD) issuer previously claimed it had “no affiliation” with digital asset import and export firm Prime Trust, which was recently shut down by Nevada regulators.

But the latest audit report shows that there is a $26,000 risk associated with True USD and Prime Trust, which has been placed under receivership by regulators. However, this associated risk is insignificant compared to the $3 billion True USD circulating supply.

The minting and redemption mechanism of TUSD tokens has become confusing, with some users reporting difficulties with both.

21.co research analyst Carlos Gonzalez told Blockworks on Thursday that it “doesn’t make much sense” to attribute TUSD’s liquidity problems to the $26,000 associated risk with Prime Trust.

"It's an insignificant amount, almost negligible compared to its $3 billion circulating supply." Gonzalez said: "It doesn't make much sense for stablecoins to stop minting and redeeming if it's just $26,000, but obviously Prime Trust is TUSD’s clearing bank, that’s why this happened.”

Users who recently attempted to mint TUSD saw the stablecoin re-minted into their wallets. As originally reported by Protos, TUSD previously relied on Prime Trust to provide its users with import and export services between cryptocurrencies and fiat currencies.

An independent audit of data from TUSD’s internal filings on Thursday revealed that the $26,000 in assets “was deposited with a U.S. depository institution that had received an order from state regulators to suspend deposits and withdrawals from digital asset accounts.” ". Industry participants said the findings, involving Prime Trust, "prevent us from obtaining sufficient and appropriate evidence" to support the TUSD issuer's assertion that "cash balances held in collateral at this U.S. depository institution can be easily converted into corresponding amount of cash".

It is unclear whether Prime Trust also holds other cash or TUSD assets. Representatives for Prime Trust and TUSD have not yet responded or declined to comment.

TUSD Decoupling

Due to the aforementioned reasons, the price of TUSD dropped, de-pegged from the US dollar and is currently trading at $0.99 according to Blockworks data. Its decoupling was more pronounced before Thursday, but losses pared at the end of the week.

Additionally, concerns have been expressed about The Network Firm’s confirmation report on TUSD.

But Nic Carter, managing partner at Castle Island Ventures, said the two firms are not the same.

He tweeted: "The Network Firm is not a reboot of Armanino, but a brand new company specializing in crypto auditing, stablecoin confirmation, etc. Armanino shut down their crypto business because they were harassed after FTX a lot of negative effects."

Meanwhile, centralized exchange Kraken announced that it will support deposits and withdrawals of TUSD on Justin Sun’s Tron network, making it possible for users to withdraw the token.

Meanwhile, interest in stablecoin-backed lending remains relatively strong, Gonzalez said. This is at least evidenced by metrics like the liquidity of DeFi-based lending solutions that support TUSD and other stablecoins.

According to Blockworks Research, TUSD is the fifth-largest stablecoin by market capitalization, slightly behind DAI, and has seen $138 million in trading volume over the past 24 hours.

According to Gonzalez, there is a significant amount of short interest in TUSD, which has had an impact on the price. However, lending activity on the stablecoin has increased significantly, with TUSD’s allocation on Curve3pool rising from 27% on June 20 to around 70% on Wednesday.

He said: “Right now people can’t really redeem the stablecoin. It’s just being reminted on-chain which is obviously a bad sign. We should wait and see if it’s just because of Prime Trust and if they can stop this process."