Tether has long wondered if it has enough assets to justify its peg to the dollar.
Tiffany Hagler | Bloomberg via Getty Images
Tether, the world’s largest stablecoin, 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 believed to still be worth $1 – fell to 95 cents on Thursday and struggled to return to its expected dollar peg.
On Friday, Tether was once again trading firmly at $1, allaying investor fears of possible contagion in the crypto market following the collapse of beleaguered stablecoin project Terra.
TerraUSD, or UST, is different 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 partly backed by billions of dollars worth of bitcoins.
Tether, on the other hand, is supposed to be cash-backed, short-term debt securities corresponding to an equivalent amount of dollars 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 tethering in times of heightened market volatility. Much bitcoin trading is done in watermark.
Tether now has around $79.5 billion in circulating supply, up from $82.9 billion 24 hours earlier. suggesting that the company behind it processed over $3 billion in redemptions in a single day.
Mati Greenspan, CEO of Quantum Economics, said the Terra debacle had “shaken” the crypto market’s confidence in other stablecoins, like tether.
“The challenge [decentralized finance] The market certainly relies a lot on the precept that stablecoins can stay stable, so if things start to go downhill it could be potentially catastrophic for the industry,” he said.
Paolo Ardoino, chief technology officer of Tether, took to Twitter to reassure investors of the strength of his company’s stablecoin.
“We had about $3 billion [in] redemptions, and they were liquidated pretty quickly through our banking channels,” Ardoino said in an hour-long live audio chat on Twitter Spaces on Thursday.
Redemption requests ranged from a minimum of $100,000 to $600 million, he added.
The problem with Terra’s UST, Ardoino said, was how fast it grew.
“It’s all fun and games until you’re a $10 billion stablecoin,” he said. “Until you’re a $5.10 billion stablecoin, even if you have sellouts because you’re backed by a bit of luna and a bit of bitcoin, today’s crypto markets are still capable of perhaps to be, probably to absorb that.”
“But if you start doubling the size of a $20 billion stablecoin…there’s no way the market can absorb those kinds of selloffs,” Ardoino added.
Tether has long wondered if it has enough assets to justify its peg to the dollar. The company previously said that all of its tokens are individually backed by dollars held in reserve.
However, after a settlement with the New York Attorney General, it was revealed that Tether held a range of other assets – including commercial paper, a form of unsecured short-term debt – to back its token.
Tether has since reduced the amount of commercial paper it holds and says it plans to further reduce the amount over time. More than 52% of Tether’s assets are now in US Treasuries and that’s expected to increase further when the company discloses its reserve breakdown, Ardoino said Thursday.
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Stablecoin Tether (USDT) regains peg after $3 billion in withdrawals – Reuters News in France and abroad
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