• Is Tether (USDT) Losing Its Dollar Peg Like Terra (UST)?

  • Tether (USDT), the world’s largest stablecoin, appears to be under tremendous liquidation pressure as the crypto market continues to fall.

    The coin has dropped 4.8 percent to 0.9508, its lowest level since the 2017 cryptocurrency meltdown.

    This decline is unusual, given that the token is mandated to retain a 1:1 peg to the US dollar. Investors are apprehensive of any depegging by a stablecoin after TerraUSD (UST) lost its dollar peg dramatically this week.

    Since last week, the crypto market has been witnessing significant consolidation, with total market value falling by approximately $900 billion.

    With a market capitalization of $81.8 billion, USDT is the largest stablecoin and the third-largest cryptocurrency. It is by far the most popular token for facilitating cryptocurrency transaction.

    Why is the USDT depreciating?

    Despite the continued fall, investors appear to be exiting the cryptocurrency sector. Given USDT’s widespread use in facilitating crypto deals, traders are most likely selling it for dollars in order to decrease their crypto exposure.

    Traders appear to be buying USDT’s peers Binance USD (BUSD) and USD Coin (USDC), implying some position against the asset. The BUSD and USDC are up 1.6 and 0.3 percent, respectively.

    In an effort to reassure investors, USDT founder Paolo Ardoino stated that the token had honored $300 million in USD redemptions in the previous 24 hours “without a single drop.”

    Tether’s reserves are shrouded in mystery.

    Bitfinex, the crypto exchange that operates USDT, claims to have a big reserve pool to back up USDT’s value. According to the organization’s data, almost 84 percent of this pool consists of cash and cash equivalents.

    However, the group has been chastised for not being transparent about its reserves. This latest selloff could also be influenced by doubts about Bitfinex’s ability to successfully back the token if it comes under further pressure.

    Investors’ faith in stablecoins may be shaken as a result of the UST crash. Given the ambiguity around Tether’s reserves, this could possibly be pushing selling.

    US financial regulators, including Treasury Secretary Janet Yellen, have also used the recent UST meltdown to criticize the broader stablecoin industry.

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