Users of decentralized exchanges have complained on Twitter about the increased spread between stablecoin swaps. This comes amidst increased staking into savings protocols due to the ongoing meltdown in the crypto space.
Users complain of a lack of stablecoin liquidity
On Friday, @cryptotutor took to Twitter to complain about the lack of stablecoin liquidity on DEXs. The user shared a screenshot showing a 27% spread in the trading pair between Magic Internet Money (MIM) stablecoin and USD Coin.
The spread was on Uniswap, one of the largest DEXs. The two stablecoins are pegged to the US dollar on a 1:1 ratio. However, when cryptotutor wanted to swap around $1 million in MIM coins for USDC, he only received a quote of 728.6K USDC.
Other users also started complaining about a similar issue. Another user under the handle @DeFiDownsin wanted to swap $984 in MIM coins to USDT but only received a quote of 4173 USDT. However, this trade was on SushiSwap.
Curve, one of the popular platforms in the decentralized finance space, joined the discussion noting that the Uniswap DEX worked better than what was shown on the screenshot. However, in the case of SushiSwap, the platform noted that “SushiSwap is just unsuitable for stablecoin-to-stablecoin swaps always.”
Indeed, Uniswap actually now works much better than what the screenshot shows.
Sushiswap is just unsuitable for stablecoin-to-stablecoin swaps always
— Curve Finance (@CurveFinance) January 28, 2022
Despite the ongoing issues in the market, Curve has recorded an improved performance. The developers on the platform state that the daily trading volumes stand at $3.6 billion, with the total amount of deposits standing at more than $16.7 billion.
The spread between stablecoin swaps presents an opportunity for arbitrage traders to benefit from the difference between stablecoin value against the pegged fiat currency to profit.
Market volatility affects stablecoin liquidity on DEXs
During market meltdowns, investors prefer not to hold volatile crypto assets. Instead, they convert their assets into stablecoins, whose value does not move with the rest of the market. They later stake these stablecoins into DeFi protocols.
DeFi savings protocols are recording an influx of deposits. Anchor, the stablecoin savings protocol on Terra LUNA, has recorded a significant increase in deposits from $2.3 billion to $6.1 billion in the past two months. The increase in stablecoin deposits on Anchor has led to its 20% yield is unsustainable, as the borrowing rate has remained relatively low.
The capital flight to DeFi protocols has led to stablecoins moving out of exchanges at a high rate, which has widened the spread by significant margins.
Your capital is at risk.