Shorting Tether through Aave: Can it be done?

If I used $10k USDC to take a $8k loan out of USDT with a fixed 5.6% interest on Aave, then if Tether collapses, would I be able to pay the original 8000 USDT to get my 10,000 USDC back despite its lower value?

I am unsure if this works because I’m unsure of how Aave calculates things. Does it pay back the loan based on the borrowed asset’s current value, or does aave just want an absolute value of tether paid regardless of it’s value?

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6 thoughts on “Shorting Tether through Aave: Can it be done?”

  1. I think you’ve got it right bruh. Deposit USDc (or anything) borrow USDT, sell it for USDC, repeat.. repeating is key bc that will increase your USDC balance way beyond what you initially deposited.

    If/when USDT crashes, buy it back from dex at pennies on the dollar and pay off the loan, pocketing your original deposit plus all the extra USDC you got from the USDT you borrowed.

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  2. You’re not borrowing an arbitrary value from aave (or any defi lending platform), you’re borrowing the asset itself.

    Just be aware the interest you pay in usdt can get to a very significant amount if the % borrowed goes over a certain amount, and if the crash never happens, well, you’re out whatever that is.

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  3. This is what I ended up doing on Anchor Protocol unintentionally to liquidated my ETH and other collateral with UST… I wish I did this initially instead of taking out a loan and buying more LUNA like an idiot

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  4. Aave works where you have to pay back what you owe. If you borrow 5k USDT they aren’t going to say you actually owe them 50k USDT. You owe what you borrowed.

    Edit: People been shorting USDT since it launched year ago and still haven’t made it crack. You’d make more money imo putting $10k into a stablecoin pool on a DEX. Especially with the ~5% borrow rate on USDT. You might see some multi-hour depeg to like $0.98 (one day eventually) but that’s hardly going to be worth it vs getting like a steady 5%+ or so on some DEX.

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  5. This is a big gamble. First consider it from all perspectives.

    Independent of our opinions, USDT has a perfect record of redemptions. They’ve weathered all storms.

    This demonstrates they have a plan to address multiple outcomes. Evidently, they have access to additional liquidity whenever needed.

    I’ve lost count of every instance people thought this or that developing issue would bring them down; and it didn’t.

    They’re being stress-tested and have stood up well.

    Please add these factors to your bet.

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