​Aave community points out the risk of using TUSD in reserves

What’s new? Members of the Aave community proposed changing the parameters for the use of the TUSD stablecoin in the DeFi protocol. The authors of the initiative put to a vote whether to gradually reduce the loan-to-value ratio in TUSD to 75% or to freeze the supply of the asset to further withdraw it from circulation. They noted that TUSD could have excessive counterparty risk, so they recommended choosing one or both options because they are not mutually exclusive. During the voting, the ratio cut option received 98,73% of the vote, while the freeze option received 14,17% of the vote.

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Details about the initiative. The authors note that both options would reduce the risk of insolvency if TUSD loses its peg from the US dollar. On June 10, the asset temporarily lost parity with the fiat currency, dropping to $0,996. At that time, the issuer suspended the issuance of the asset through Prime Trust’s crypto custodian platform. The latter, according to the Nevada regulator, is on the verge of bankruptcy and was unable to process all withdrawal requests on June 21 due to insufficient funds.

Announcement:TUSD mints via Prime Trust are paused for further notification.Thanks for your understanding and we are sorry for any inconvenience. Please contact suppo[email protected] for any further questions. — TrueUSD (@tusdio) June 10, 2023

On June 20, TUSD’s own automated attestation was suspended due to balance problems, Protos reports. According to system provider The Network Firm, liabilities exceeded the amount of the issuer’s assets.

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Aave members noted that when the TUSD rate drops to $0,96, a “small amount of liquidations” may already be seen. However, they noted that they cannot fully assess the risks associated with centralized stablecoins and regulatory issues.

In February, Aave participants also proposed freezing reserves in BUSD stablecoins, previously issued by Paxos under the Binance brand. The proposal stems from the fact that US regulators banned further issuance of the asset, and it no longer has a “prospect for growth.”