Bitcoin Jumps to Three-Month High Above $82K on Report of US-Iran Agreement
Bitcoin surges to $82K high as U.S. nears Iran peace deal
Decrypt1 min read
DeFi's stress test ends quietly. Nothing broke.
TL;DR
The recent stress test in DeFi concluded without major issues, as borrowing rates for stablecoins on Aave dropped to 5% or less. This follows a liquidity crisis triggered by the KelpDAO hack, which has since been addressed through governance measures and funding.
Key points
- DeFi stress test ended without major issues
- Borrowing rates for stablecoins on Aave dropped to 5%
- Liquidity crisis followed the KelpDAO hack
- Over $160 million raised for liquidity relief
- Governance measures suggested to improve liquidity
KelpDAO
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While the crypto world focuses on bitcoin BTC$82,164.36 rally, a major market issue tied to decentralized finance (DeFi) looks to have resolved for good.
Borrowing dollar-pegged stablecoins such as tether USDT$0.9997 and USD Coin (USDC) from heavyweight decentralized lending platform Aave now costs 5% or less in annualized interest. That's much lower than the 13%–14% seen last month following the KelpDAO hack.
The aftermath of the exploit saw whales pull out millions worth of coins, including stablecoins, from Aave, leading to borrowing pools running short of liquidity. This forced some traders to resort to borrowing stablecoins against their own locked stablecoin deposits. The net result was a surge in borrowing rates that could have easily spilled over into the wider market.
Normalization occurred after Aave governance suggested measures to improve stablecoin liquidity and ecosystem participants raised more than $160 million in relief funding.
“The crisis has resolved, and Aave V3 USDC has now normalized to around 3.86%. Morpho’s curated vaults sit in a 3.5% to 5.4% range, while Sky’s USDS savings rate is around 3.65%,” said Adam Haeems, head of asset management at Tesseract Group. Tesseract has $500 million in assets under management.
He added that the stablecoin rate cycle, from spike to fix to normalization, ran entirely independent of where bitcoin trades, with no spillover effects. “That is the more useful story for institutional allocators,” he noted.
Speaking of BTC, it topped $82,000 early today as oil prices crashed 6% and Nasdaq futures rallied on reports that Iran and the U.S. are nearing an agreement to end the conflict that has disrupted oil flows through the Strait of Hormuz, triggering gas price surges in the U.S. and petrol spikes in Asia.
Some analysts are now closely watching the 200-day SMA at $83,800.
“The leading cryptocurrency is approaching its 200-day moving average; a firm consolidation above this level would be a further sign of bullish dominance. We saw the first such signal—consolidation above the 50-day moving average—exactly one month ago. It is quite likely that, as Bitcoin approaches $83K, a short-term profit-taking phase may emerge, allowing some gains to be realized,” said Alex Kuptsikevich, Chief Market Analyst at FxPro, in an email.
Q&A
What caused the spike in borrowing rates on Aave?
The spike in borrowing rates on Aave was caused by the KelpDAO hack, which led to a liquidity crunch as whales withdrew millions in stablecoins.
How much funding was raised to improve liquidity on Aave?
Ecosystem participants raised over $160 million in relief funding to improve liquidity on Aave following the exploit.
What are the current borrowing rates for stablecoins on Aave?
Current borrowing rates for dollar-pegged stablecoins on Aave are now 5% or less, significantly lower than the 13%-14% rates seen last month.
What measures were suggested to improve liquidity on Aave?
Aave governance suggested measures to improve stablecoin liquidity, which contributed to the normalization of borrowing rates.
