IMPORTANT question regarding Tether (USDT)

[if in wrong section, just move]

Hello everyone, just a quick question regarding Tether (USDT)

on v1 of yearn finance there are 2 sections: Vaults & Earn (which I can’t find on v2, so staying in v1)

By investing in the Earn section, the USDC that I would be investing would be invested in y (curve), converting my tokens to yUSDC.

by going in I notice that:

  1. the currency reserves are all stablecoins: DAI, USDC, USDT, TUSD
  2. in the risks section, one of the risks is “permanent loss of a peg”
    if one of the stablecoins goes below 1,0 and never returns to peg, ALL pool liquidity providers hold almost all their liquidity in that currency

Therefore in an apocalyptic scenario if USDT were to drop to 0 (again, hypothetical), my yUSDC tokens would lose a LOT of their value - right? because I’m part of the y pool, which collectively lost money.

2nd scenario: vaults
I notice that the USDC vault (18M usdc in it) is part of the StrategyUSDC3pool
by investing in THAT, my tokens are conerted into yCrv
whose token on etherscan says:

Again - the fact that USDT is there, in an apocalyptic scenario, if USDT was to drop to 0, I would be losing a big chunk of money, having invested in a token that’s partly backed up by USDT.

Is my logic correct?

I know that there’s no money to be made risk-free, but if I can minimize it to my best extent, then why not do it?
So my question is

If my logic is correct, then how do I invest my USDC in a way to avoid any effects from anything bad that might happen to USDT?

1 Like

You are correct. Most of yearns production stablecoin vault strategies involve farming CRV in a pool holding USDT, except the crvCOMP and eursCRV vaults. Deposit into those instead.

Fear of Tether going to 0 is not new and with the NYAG investigation about to be underway, I understand your concern. It would absolutely destroy defi in the short term, meanwhile it might pump BTC/ETH.

Two other ways to hedge the risk is to take a USDT loan out on your USDC with Aave etc. Rates are pretty high right now since fear is high. Or you could buy protection with Opium Finance.

Good luck, stay safe!

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