Tether (USDT) stablecoin is regaining pegs after $3 billion in withdrawals

Tether (USDT) stablecoin is regaining pegs after  billion in withdrawals

Tether has long faced questions about whether it has enough assets to justify its peg to the dollar.

Tiffany Hagler | Bloomberg via Getty Images

Tether, the world’s largest stablecoin, has regained its peg to the dollar after more than $3 billion worth of tokens left the system in a single day.

The cryptocurrency – which is said to always be worth $1 – fell as low as 95 cents on Thursday, struggling to climb back up to the intended dollar peg.

On Friday, Tether was again trading firmly at $1, assuaging investor fears of potential contagion to the crypto market from the collapse of embattled stablecoin project Terra.

TerraUSD or UST differs from Tether in that it relies on a complex mix of code and a sister token called Luna to stabilize its price. It was also partially collateralized by billions of dollars worth of bitcoin.

Tether, on the other hand, is said to be backed by cash, short-term debt obligations equal to a corresponding dollar amount deposited by its users. These assets are held in a reserve managed by a company of the same name.

It’s essentially like a bank account for crypto investors, who often turn to Tether during periods of heightened market volatility. Much of Bitcoin trading is done in Tether.

Tether now has around $79.5 billion in circulating supply, up from $82.9 billion 24 hours earlier. This suggests that the company behind it processed over $3 billion in redemptions in just one day.

Mati Greenspan, CEO of Quantum Economics, said the Terra debacle “shook” the crypto market’s confidence in other stablecoins like Tether.

“The DeFi [decentralized finance] The market certainly has a lot to do with the tenet that stablecoins can remain stable, so if things unravel it could be potentially disastrous for the industry,” he said.

Tether’s Chief Technology Officer Paolo Ardoino took to Twitter to reassure investors about the solidity of his company’s stablecoin.

“We had about $3 billion [in] redemptions and they were liquidated fairly quickly through our banking channels,” Ardoino said in an hour-long live audio call on Twitter Spaces on Thursday.

Redemption requests ranged from at least $100,000 to as much as $600 million, he added.

The problem with Terra’s UST, Ardoino said, was how fast it was growing.

“It’s all fun and games until you’re a $10 billion stablecoin,” he said. “By the time you’re a $5, $10 billion stablecoin, even if you have some liquidations because you’re backed by some Luna and a small helping of Bitcoin, the current crypto markets will still be able to, that maybe, probably , to absorb.”

“But when you start doubling in size to a $20 billion stablecoin…there’s no way the market can absorb those kinds of liquidations,” Ardoino added.

Tether has long faced questions about whether it has enough assets to justify its peg to the dollar. The company previously said that all of its tokens are backed one-to-one by dollars held in a reserve.

However, following a settlement with the New York Attorney General, it was revealed that Tether owned a number of other assets – including commercial paper, a form of short-term, unsecured debt – to back its token.

Tether has since reduced its holding of commercial paper and plans to further decrease the amount over time. More than 52% of Tether’s assets are now in U.S. Treasury bills, and that’s expected to increase even more when the company next discloses its reserves breakdown, Ardoino said on Thursday.

Leave a Reply

Your email address will not be published.