Close in the heels of UST de-pegging, USDT Tether too could be de-pegging.
The stablecoin USDT Tether is down 5 per cent, which is the lowest dip on its value in the past 2 years. The stablecoin is now trading at $0.95, as per data from CoinMarketCap, as of 12:50 pm IST on Thursday.
What is USDT Tether?
USDT Tether is a stablecoin. It is a cryptocurrency pegged to the US dollar.
How is Tether pegged to USD?
The stablecoin is pegged to the USD by maintaining a sum of commercial paper, fiduciary deposits, cash, reserve repo notes, and treasury bills in reserves that is equal in USD value to the number of USDT in circulation.
Why was USDT created?
The USDT whitepaper states that the objective of creating USDT was to combine the unrestricted nature of cryptocurrencies, that is to send money between users without a trusted third-party intermediary, with the stable value of the US dollar.
Why is Tether Crashing?
Crypto expert and vice president, Research and Strategy at Earth ID, Sharat Chandra, told Business Today that, “Volatility in crypto markets is testing the mettle of stablecoins. After non-collateralized algorithmic stablecoin UST, collateralized stablecoin Tether has lost its peg. It's important to highlight the reserve breakdown of Tether. Commercial paper and certificates of deposits form a major chunk of USDT reserves followed by cash and bank deposits and reserve repo notes and Money Market Funds. These are not highly liquid assets. In April , Tether's CTO Paolo Ardoino did promise to reduce Tether's holdings of commercial paper from the current 30 per cent of total reserves."
Chandra further explained: "Decade high inflation and rising interest rates have wreaked havoc on bond and currency markets. The value of assets held by Tether , therefore, has taken a beating in these uncertain times."
Lastly, he pointed out that the US Fed's "recent Financial Stability Report highlighted that stablecoins are backed by assets that may lose value or become illiquid during stress; hence, they face redemption risks similar to those of prime and tax-exempt MMFs. These vulnerabilities may be exacerbated by a lack of transparency regarding the riskiness and liquidity of assets backing stablecoins. "
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