tetherThe world’s largest stablecoin dollar Over $3 billion in tokens left the system in a single day.
The cryptocurrency, which is always worth $1, fell to 95 cents on Thursday, struggling to return to its intended dollar peg.
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By Friday, Tether was once again trading strongly at $1, allaying investor concerns over the potential for crypto market contagion from the collapse of beleaguered stablecoin project Terra.
Tether has long faced doubts about whether it has enough assets to justify a peg to the dollar.
Tiffany Hagler | Bloomberg via Getty Images
terra usd, or UST, differs from Tether in that it relies on a complex combination of codes and sister tokens called luna to stabilize its price. It was also partially collateralized by Bitcoin worth billions of dollars.
Tether, on the other hand, is believed to be backed by cash, a short-term debt equivalent to the amount of dollars deposited by users. Their assets are held in reserves managed by the company of the same name.
It is essentially a bank account for cryptocurrency investors who often rely on Tether during times of market volatility. Many Bitcoin transactions are done on Tether.
Currently, the circulating supply of Tether is around $79.5 billion, down from $82.9 billion 24 hours ago. The company behind it suggests he processed more than $3 billion in redemptions in just one day.
Quantum Economics CEO Matty Greenspan said the Terra debacle “shaken” the crypto market’s confidence in other stablecoins like Tether.
“defy [decentralized finance] The market certainly relies heavily on the principle that stablecoins can remain stable, so it could potentially be devastating for the industry if the situation starts to unravel.
Paolo Ardoino, CTO of Tether, took to Twitter to reassure investors about the health of his company’s stablecoin.
“We had almost $3 billion [in] Redemptions, and they cleared fairly quickly through our banking channels,” Ardoino said in a one-hour Twitter Spaces live voice conversation on Thursday.
Reimbursement demands range from a minimum of $100,000 to a maximum of $600 million, he added.
According to Ardoino, the problem with Terra’s UST was how quickly it grew.
“Until we get to the $10 billion stablecoin, it’s all a fun game,” he said. “Until you have a $5 billion, $10 billion stablecoin, even with some liquidation due to being backed by some Luna and a tiny fraction of Bitcoin, the current crypto market is You can probably absorb it.
“But if we double the size to a $20 billion stablecoin … the market cannot accept this kind of liquidation,” Ardoino added.
Tether has long faced doubts about whether it has enough assets to justify a peg to the dollar. The company previously said that all tokens are backed 1:1 by dollars held in reserves.
However, after settling with the New York State Attorney General, it was revealed that Tether held various other assets, including commercial paper, a type of short-term unsecured debt, to back its tokens.
Tether has since reduced the amount of commercial paper it holds and says it plans to reduce it further over time. More than 52% of his Tether assets are now in U.S. Treasury securities, which is expected to increase further when the company next discloses a breakdown of its reserves, Ardoino said. said Thursday.
