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Tonyp
@tonyp
In a disorderly unwind of USDe, do holders sit in stETH or swap that to USDC/T?
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onetruekirk.eth
@onetruekirk
Redemptions are in kind (stETH or other backing assets) If rates go negative, individual holders must redeem into one of the underlying assets, meaning the risk of holding USDe or using it as collateral is equal to the underlying assets’ price/liquidity risk + custodial risk
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onetruekirk.eth
@onetruekirk
This means that holders are not obligated to eat a large penalty going from stETH or other LST -> ETH or USD, and it’s not very likely that stETH or other large LSTs suffer a depeg worse than they did before a redemption queue existed at all
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Tonyp
@tonyp
This is true for an orderly unwind. But in the case of a liquidation cascade, all that stETH would be sold to stables to repay loans. Could lead to a nasty contagion.
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onetruekirk.eth
@onetruekirk
Agreed about the risk of a liquidation cascade, my previous comments are in regard to unleveraged holders who are free to sit in the underlying assets like stETH instead of selling if there is a liquidity crunch
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