Aave trader loses $529k as USDP experiences a temporary surge to $1.28
The Paxos Trust Company’s stablecoin, the Pax Dollar (USDP), saw a significant increase in value, reaching a peak of $1.28. This sudden surge led to the liquidation of $529,000 worth of USDC by a market participant.
Similar to other stablecoins, USDP is designed to maintain a stable value equivalent to the US dollar, providing traders with a safe haven against the volatility often associated with cryptocurrencies. However, the recent unexpected price increase, which was brought to light by PeckShield, has raised concerns.
Yesterday at 16:10 UTC, the stablecoin experienced an unusual spike, reaching $1.2848, before eventually dropping back to its usual price of $1 four hours later. While most people may not have noticed the deviation from its peg, it had significant consequences for a trader who had used USDP as collateral to secure a loan in USDC on the decentralized finance (defi) platform Aave.
In the defi ecosystem, loans are backed by other assets, and mechanisms are in place to manage sudden market shifts. On-chain data confirms that the trader lost 529,000 USDC in sixteen separate transactions between 16:16 and 20:09 UTC, aligning with the period when USDP lost its peg. The transaction label indicates that the liquidation process was automatically initiated by Aave’s risk management algorithms.
The platform likely anticipated a possible correction or a return to the normal pegged rate as the USDP value spiked. Such forecasts can trigger preemptive liquidation to minimize potential losses, especially if the borrower’s loan-to-value (LTV) ratio becomes unfavorable.
USDP, issued by Paxos, has faced challenges recently, including occasional depeg events. A research report from SP Global in 2023 revealed that USDP has the highest deviations from the US dollar among the top stablecoins, with 7,581 mild depeg events recorded in the 24 months leading up to June 2023.
