In recent news, Tether (USDT), the largest stablecoin by market capitalization, has fallen below its dollar peg, with the asset trading at $0.996 at press time. Tether’s CTO, Paolo Ardoino, took to Twitter, stating that “markets are edgy in these days” and assured that the popular stablecoin is “ready as always” to face these challenges.
Ardoino’s statement refers to holders’ ability to swap their USDT token for the underlying dollar it represents, as the company is prepared to redeem any amount requested. “Let them come,” he said. However, this dollar-backing has been a point of contention for Tether over the years, with critics alleging that the company does not actually possess the full amount of money it claims.
In an effort to address these concerns, Tether has provided regular assurance reports from accounting firm BDO Italia. The latest report revealed that most of its reserves were held as cash or cash equivalents, mainly invested in U.S. Treasury Bills, with only 1.8% held in Bitcoin. With an $83 billion market cap, USDT ranks as the industry’s third-largest cryptocurrency after Bitcoin and Ethereum.
But the dip below the dollar peg raises concerns among stablecoin users. Unlike volatile cryptocurrencies such as Bitcoin or Ethereum, stablecoins like USDT are pegged to fiat currencies, offering a convenient and low-volatility asset for traders looking to exit more volatile cryptocurrencies. If these assets lose their peg to their fiat counterpart, it can stir fears in the market.
Analysts have also been monitoring Curve Finance’s 3pool to gauge investor sentiment. Curve Finance is a popular decentralized exchange that allows users to swap between similar assets. Its 3pool contains the three largest stablecoins: USDT, Circle’s USDC, and Maker’s DAI.
Each asset is dollar-pegged, offering investors an arbitrage trade between all three should any of them lose their peg on either side. With an abnormally high amount of USDT flowing into the 3pool (and USDC and DAI moving out), investors seem eager to exit Tether’s stablecoin. In fact, USDT currently composes a majority of 73% of the pool, a percentage that hasn’t been seen since November 2022 when FTX filed for bankruptcy.
These recent events emphasize the need for stablecoins to maintain their peg to fiat currencies, as any deviation can significantly impact investor confidence and market stability. While Tether assures its readiness to face evolving challenges, the increasing skepticism regarding its dollar-backing and overall performance must be acknowledged and addressed. As investors continue to monitor these fluctuations, it remains crucial to weigh the pros and cons of using stablecoins like USDT in the current market climate.
Source: Decrypt
