Proactive Investors - Tether (USDT), the largest stablecoin in existence and the lubricant that keeps the crypto markets ticking over, briefly fell 2% below its US$1 peg in the past hour.
While stablecoin depeggings are common, anything greater than a fraction of a percent can be worrying.
Purportedly backed by real-world assets (though this has been a point of contention), USDT and other stablecoins are synthetic assets that act as digital representatives of the US dollar.
They solve the problem of price volatility in the crypto markets: With stablecoins, crypto traders can engage with the decentralised finance (DeFi) markets without worrying about noticeable price fluctuations.
Since USDT is/should be backed 1:1 with US dollars or equivalents, a significant drop in USDT’s value could devastate the crypto markets.
To put this into context: The two trillion dollar market rout earlier this year was largely due to the depegging of another stablecoin called TerraUSD (UST).
UST had a market cap of US$18bn preceding its collapse. Tether (USDT) currently has a market cap of US$70bn.
USDT is far and away the most traded cryptocurrency, with recent daily volumes exceeding US$130bn.
#tether processed ~700M redemptions in last 24h.Tether’s chief technology officer Paolo Ardoino sought the assure the market online, and Tether has stated that it had no exposure to FTX prior to collapse.No issues.
We keep going.
— Paolo Ardoino ???? (@paoloardoino) November 10, 2022