The new figures suggest that Tether has paid out more than the total cash on hand to keep USDT stablecoin peg with dollar. How is it possible?
The recent Terra platform crash launched total panic about the stablecoins future.
As UST lost its dollar peg and LUNA literally crashed in a few days, users started withdrawing their crypto assets.
Stablecoins were hit the most as the Terra platform case shows that ‘digital dollars’ can become digital cents at a finger snap.
Traditional non-crypto media cried out that ‘stablecoins fall’. But actually, there was only one fallen stablecoin. And tokens like USDT, USDC, BUSD (or even DAI, Pax Dollar, True USD, etc.) succeeded to save their credibility.
Sure, you could notice a few cents drop in Tether price right after the Luna crash. But still, USDT is the most daily traded token with a current market cap of around $75 billion.
And the last stats figure shows that in order to sustain USDT peg to dollar Tether paid out more money to customers than it had in fact.
USDT peg to dollar
Digital investors have withdrawn savings in the stablecoin Tether worth $7,6 billion since the crypto crisis began last week, the Guardian writes with Financial Times cites.
The new withdrawal report suggests that the platform has paid out a sum almost twice its total cash holdings. Normally, it would raise concerns about whether USDT peg to dollar is in question.
The rest of its reserves were held in cash-like assets, including $35 billion of US government debt and $25 billion of corporate bonds.
Right after the market crash Tether’s CTO Paolo Ardoino assured that his company has reduced its commercial paper holdings, and increased its US Treasuries as reserves for USDT.
Amid the panic in the stablecoin sector, Tether proved that is the most liquid stablecoin on the market. USDT maintained its peg to dollar despite the massive cash withdrawal.
The dollar peg of USDT is backed by a strong, conservative portfolio of cash and cash equivalents like short-term treasury bills, money market funds, commercial papers, etc.
However, Ardoino refused to share any further details of the investments. “We don’t want to give our secret sauce,” he said.
(Non)plain Tether’s history
As we know, Tether is the fiat-backed currency that is held by a third-party financial entity – Tether Limited. Journalists found out the ties between this company and the Bitfinex exchange platform, so it isn’t a secret anymore.
Appeared in 2015, the Tether platform declared to peg USDT to dollar by 20% of the US dollar reserves held on Tether Limited accounts.
But a few years ago some concerns about it came up. The company issued an additional 2.3 billion tokens and the US regulator doubted these tokens were backed by fiat dollars.
Lastly, in 2019 the company confirmed that 74% of its tokens are backed by USD reserves. While the figure is rather questionable it is obviously big enough to sustain USDT peg to dollar.
Now we know that the USDT token is traded precisely at the $1 level. And you can withdraw it anytime soon. But remember that exchanges like Binance could take a fee of around 0,1%-1,5%, which depends on the converting/withdrawal type.
And that’s pretty much it.
Sources: The Guardian