LUSD, an Ethereum-based stablecoin, jumped to $1.03 this week after trading slightly below its intended dollar peg since July.<\/p>\n
<\/p>\n <\/a><\/p>\n Sam Lekhak<\/a>, head of growth at issuer Liquity<\/a>, told The Defiant that a likely reason for the rally is a wealthy investor paying off $20M in LUSD-denominated debt since Jan. 5. He added that the borrower bought LUSD through DEX aggregators<\/a> to pay back the loans, leading to its increase in price.<\/p>\n The trades were routed through Curve Finance, a leading DeFi exchange which regularly processes over $1B in volume per week \u2014 the biggest LUSD pool<\/a> saw its reserves of the stablecoin nearly depleted this week, according to a Dune Analytics dashboard<\/a>.<\/p>\n <\/p>\n <\/a><\/p>\n LUSD has since settled to $1.01, according to CoinGecko. As it\u2019s still trading above its peg, Lekhak thinks that redemptions of LUSD may slow. This is because when the stablecoin was trading below $1, it became cheaper in dollar terms for borrowers to repay their loans.<\/p>\n If LUSD stays above $1, that incentive goes away.<\/p>\n Liquity launched in 2021 and drew praise for its design, which minimized involvement from governance. This contrasts with MakerDAO, another major lending protocol which issues the dollar-pegged DAI stablecoin. Maker has been a nearly constant source of confusion and drama<\/a> as it looks to scale<\/a> as a decentralized organization.<\/p>\n Still, some advantages of being able to adapt to new market trends, like real-world assets<\/a> (RWAs), are apparent \u2014 Maker was able to generate substantial revenue through the crypto bear market by deploying some of its collateral in US Treasuries.<\/p>\n Maker also pushed forward an initiative in August 2023 to offer an 8%<\/a> yield on DAI. Bojan Pe\u010dek<\/a>, head of operations at Liquity, cites this as the beginning of LUSD\u2019s move to trade below peg. The stablecoin\u2019s price action over the last year supports that theory.<\/p>\n Liquity charges a one-time fee to borrowers, which fluctuates between 0.5% and 5%, according to the protocol\u2019s documentation<\/a>. With other stablecoins offering higher yields, traders would borrow LUSD cheaply and swap the asset for more lucrative ones.<\/p>\n Pe\u010dek<\/a> added that other factors, like arbitrage bots and less demand for stablecoins overall, also kept LUSD below its peg during the second half of 2023.<\/p>\n He noted that LUSD held up despite the selling pressure. \u201cLUSD regained its peg autonomously, without any human interference,\u201d he said. \u201cBorrowing demand is picking up.\u201d<\/p>\n![\"chart](\"https:\/\/thedefiant.io\/_next\/image?url=https%3A%2F%2Fcdn.sanity.io%2Fimages%2F6oftkxoa%2Fproduction%2F90b128af9927482c5a2aba887b480f99ca0f0688-1524x768.jpg&w=828&q=100\")
![\"LUSD](\"https:\/\/thedefiant.io\/_next\/image?url=https%3A%2F%2Fcdn.sanity.io%2Fimages%2F6oftkxoa%2Fproduction%2Fef94af94dd60e9eef470f8302f87fceb8e1336ac-1600x1004.jpg&w=828&q=100\")
![\"LUSD](\"https:\/\/thedefiant.io\/_next\/image?url=https%3A%2F%2Fcdn.sanity.io%2Fimages%2F6oftkxoa%2Fproduction%2Fabc5005bf5d0ab2a8055a9f7277df10591153a2e-814x461.jpg&w=828&q=100\")