Speculation is mounting that Tether’s USDT, the largest stablecoin by market capitalization at around $83.4 billion, may be under pressure. While there is currently no indication of a USDT depeg and USDT is trading at almost exactly one dollar, a stablecoin may lose parity with the stable asset it is nominally pegged to.
Specific liquidity pools on Uniswap and Curve protocols, the deepest pools in the DeFi ecosystem, currently seem to be flooded with USDT sellers. When sellers flood the market, it can cause a rapid depeg – a situation noted during the Silicon Valley Bank collapse when the well-regarded USDC stablecoin lost its peg, falling as low as $0.93 and regaining dollar parity within days.
According to Blockworks Research analyst Ren Kong, the Curve 3pool, which holds $380 million of USDT, USDC and DAI, and the Uniswap v3 USDC/USDT pool, which holds $75.85M of USDC and USDT, appear susceptible to selling pressure. The Curve 3pool is the third-largest DEX pool, and the largest USDT and DAI pool in the DeFi (decentralized finance) arena. Both are rapidly seeing USDT compositions rise dramatically, with the stablecoin rising from a 22% share of the Curve 3pool three days ago to over 50% at the time of writing.
While the current selling activity does not constitute an attack, analysts hypothesize that a dump of this magnitude could be considered a precursor to a more significant event. The selling is particularly concerning since the speed and magnitude of a depeg can be accelerated by a lack of liquidity in the pool, especially for the Uniswap v3 pool, where most of the liquidity is concentrated around the $1 price.
A depeg of the USDT stablecoin could be catastrophic for the crypto economy, particularly since USDT has been gaining market share at the expense of the well-regulated USDC stablecoin. In the past three months, USDT has gained around $14 billion in market capitalization, while USDC has lost almost the same amount.
Tether has long maintained that USDT is backed by equivalent assets held in reserve, including cash and bonds, but it has never delivered a proper audit; only “attestations” as to its ability to meet its obligations. Instability in Tether would come at a particularly inopportune time for crypto, which has faced enforcement actions from regulators like the SEC.
Though there are no definitive conclusions right now, abnormal levels of selling could reasonably be seen as concerning. A potential issue with Tether would create the kind of systemic meltdown that regulators and legislators fear in the crypto industry.
Source: Blockworks
