Biggest Stablecoin Loses Dollar Peg as Crypto Anxiety Spreads


(Bloomberg) -- Tether, the largest of the stablecoins used in cryptocurrency markets to facilitate trading, briefly dropped to the lowest level since December 2020 as the fallout from the collapse of the TerraUSD token continues to reverberate across the digital-asset landscape.

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The price slipped as low as 94.55 cents from its intended 1-to-1 peg to the dollar on Thursday morning in London before recovering to just above 98 cents, Bloomberg-compiled data show. Paolo Ardoino, Tether's chief technology officer, said in a tweet that investors can continue to redeem the tokens at a one-to-one value to the dollar via its platform.

With a market value of about $84 billion, Tether is an essential cog to the array of crypto trades being actioned across the market at any given time. Investors turn to stablecoins as a way of retaining value without leaving the digital asset ecosystem, acting as a safe haven from volatile coins or even simply as a means of digital payment. It is the most traded cryptocurrency by far, charting more than double the volume of second-place Bitcoin over the last 24 hours at $178 billion.

The Tether price dip came as a massive selloff in cryptocurrencies wiped more than $200 billion in value from the market in 24 hours. Tether operates differently to TerraUSD, or UST, which was designed to use a complex mix of code, trader incentives and swaps with its sister token Luna to maintain its peg. Its decline highlights the overall risk-off mood that's sweeping through crypto markets, analysts said.

"Tether's de-pegging seems more driven by market sentiment rather than real concern over its reserves, which demonstrates how important centralized markets are for maintaining a stablecoin's peg," Clara Medalie, research director at Kaiko, said in an email.

Ardoino appeared to seek to alleviate any concern about Tether's stability, saying in his tweet that it had redeemed over $300 million in tokens in the last 24 hours "without a sweat drop."

As of Thursday morning in London, the broader stablecoin market had experienced bouts of volatility but largely avoided the same dramatic collapse as Terra's UST. Other major tokens including Circle Internet Financial Ltd.'s USDC, Binance Holdings Ltd.'s Binance USD and Maker's DAI were trading at their pegs on Thursday, according to pricing data from CoinGecko.

"There may be some stablecoin contagion following UST, however Tether continues to honor 1:1 redeemable ratio on their platform," Fadi Aboualfa, head of research at crypto custodian Copper, said in an email. "Anyone who was around 2017-2019 and saw massive drops in Tether, and it was really an opportunity to buy at a discount."

Stablecoin Swaps

Tether's price activity hasn't been limited just to traders wanting to exchange it directly for fiat currency, either.

Data from Dune Analytics, which tracks the distribution of currency reserves in a pool where traders can swap one stablecoin for another, showed a sharp surge in Tether's share of the total liquidity pool on Thursday. On May 7, Tether's USDT constituted 42.6% of the total reserves in Curve's 3pool -- a figure which jumped to 92.6% as of mid-morning on Thursday. Tether's value against the other stablecoins in that pool, DAI and USDC, has slipped as a result.

"I think given the situation with UST and market volatility retail traders are motivated to exchange their stablecoins for actual dollars, and the imbalance in the Curve pool is a result of that fluctuating demand rather than a full-on bank run," said Andrew Thurman, who is in charge of content at blockchain data firm Nansen.

"Quite a few people are lacking confidence in all stablecoins at the moment. I wouldn't be surprised if a lot of USDT holders saw what happened to Terra and are now exchanging for cheap Bitcoin," said Mati Greenspan, founder of crypto research outfit Quantum Economics.

More than $1.8 billion of Tether was removed from the market between Wednesday and Thursday, as Tether's market value dropped to as low as $82,2 billion from $84,2 billion, according to data from CoinGecko.

(Updates with context, price chart, comment from analysts throughout)

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