GUSD Lending Rates Soar on Aave as Speculators Dump It

Jimmy Aki
Last Updated:

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.

As doubts loom over the stability of Gemini’s Earn product due to issues with one of its major partners, speculators are attempting to short the digital asset, leading to a massive surge in lending rates on Aave.

Is GUSD in Danger?

Earlier this week, Genesis Global, an institutional crypto platform with deep ties to some of the market’s biggest names, confirmed that it would halt withdrawals due to market conditions. The contagion effect has now hit the Gemini Exchange, with the Winklevoss Twins-owned company confirming that customer redemptions will be affected.

This has led to a massive spike in lending rates for Gemini’s GUSD stablecoin on the decentralized lending marketplace, Aave. According to tracking data, the available supply of GUSD on Gemini currently stands at 9.62 million, a significant surge over the past month. Supply annual percentage rates (APR) also stand at 65.61%, over a 100% increase from the levels seen just two days ago.

Looking to quell the mania, Mark Zeller, the head of integrations at Aave, reminded users on Twitter that they can’t use GUSD as collateral on the platform. However, since the asset can still be lent out, liquidity providers on Aave who got in early could be in line to earn massive yields.

Genesis Insolvency Spills Over to Gemini

The spike in lending rates appears to have been due to Genesis Global’s looming liquidity crisis.

Earlier this week, the institutional lender confirmed that it would temporarily suspend redemptions and originations for new loans in its lending business. Blaming an “unprecedented market turmoil,” Genesis Global confirmed that it had also been exposed to FTX, the crypto exchange whose insolvency and bankruptcy led to a massive market downturn over the past week.

It is worth noting that the FTX debacle isn’t the only issue facing Genesis. The company had also been affected by the collapse of crypto hedge fund Three Arrows Capital (3AC) in June. As part of Three Arrows’ bankruptcy proceeding, Genesis had filed a $1.2 billion liability claim against the hedge fund.

Concerning FTX, Genesis had revealed earlier this month that it had about $175 million in funds locked in the now-defunct exchange. The company received a $140 million capital infusion from the Digital Currency Group to cover its liabilities, but the wave of customer redemptions appears to have exceeded its available liquidity.

With Genesis now essentially set for a bankruptcy filing, Gemini has also seen its business affected. Earlier today, the New York-based exchange confirmed that Genesis is its leading liquidity provider for its Earn product, which allows customers to lend their crypto to institutional borrowers and earn interest.

According to the company’s update, it won’t be able to meet customer redemptions within the stipulated service-level agreement (SLA) of 5 business days. However, the exchange has also asserted that its only exposure to Genesis is with its Earn product, all other services and products are unaffected by this, and Gemini has confirmed that it is a full-reserve custodian and exchange. Thus, customers are free to withdraw their funds at any point.

Who Folds Next?

Now, it is a question of who could be next. Circle, the issuer of the USDC stablecoin, also had ties to Genesis, as both companies had partnered in 2020 to offer yield and lending services to USDC holders.

According to an internet archive, Circle listed a 0.25% annual percentage yield (APY) on its uSDC yield product. Right now, that figure stands at 0%.

The unfolding drama continues what now seems to be a never-ending set of revelations about FTX and its effects on the market. The exchange had essentially been too interconnected to fail, and its deep industry roots are now being uncovered as more and more companies are revealing their levels of exposure to the one-time industry giant.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.