Tether’s Supply Crashed Amid De-Pegging Concerns: Analysis

Tether’s supply crashed amid the de-pegging concerns and briefly lost its peg as well but now some investors dropped the stablecoin for the competition so let’s read more today in our latest Tether news.

Amid the dramatic events around last week’s TerraUSD collapse, Tether as the industry’s biggest stablecoin dropped by more than $7 billion. Tether’s supply crashed and its market cap dropped to $75.6 billion from the previous $83 billion. The decrease in USDT supply coincided with the stablecoin losing its dollar peg by 5% a week ago before recovering and trading at a discount of $0.998. Amid the depegging, Tether stated that in times of market volatility, it continued to honor its redemptions from the verified customers with $2 billion processed on May 12.

Tether Continues to Honour All Redemptions from Verified Customers During Market Volatility, On Track To Process 2bn Today https://t.co/p1AugHb9Gn

— Tether (@Tether_to) May 12, 2022

The centralized stablecoins are alleged to have flat reserves in case users start swapping their stablecoin holdings for fiat currencies. These reserves are not kept in cash either with the stablecoin providers reporting cash equivalents, commercial paper, crypto, and other reserve assets. In a depegging scenario, the users can put these reserves to the test due to the enticing arbitrage opportunity and if a stablecoin falls below its peg, the investors could buy the discounted token and redeem it for the dollar value thus pocketing the difference.

If not redemptions, the speculators can swap the discounted stablecoin for another stablecoin that hasn’t lost its peg for a similar trade. As per the Tether CTO Paolo Ardoino, the company redeemed $7 billion in the past 48 hours in seconds and the latest reprots indicated that over $7,485 billion worth of USDT has been redeemed.

Other major stablecoins like Circle’s USDC, MakerDAO’s DAI, and Binance’s BUSD, experienced a 1% to 2% premium during the Tether redemption wave. Just as the USDT supply shrank, USDC expanded by $2.639 billion over the same time span and something that can provide more insight into the market preference during times of severe stress:

“Given the dominant growth of USDC over the last [two years], this may be an indicator of changing market preference away from USDT and towards USDC as the preferred stablecoin.”

Just like USDT, UDSC is a stablecoin which claims to have a 1:1 value with the dollar so USDC was developed by the financial services company Circle in partnership with Coinbase.