The current state of the cryptocurrency market can be best described with the help of falling dominoes. First, it was the collapse of the algorithmic stablecoin TerraUSD [UST], sowing turbulence in the broader market. Then its the grown-up cousin Tether [USDT] that wavered from the peg, fueling concerns over its status as a place to hide during times of turbulence. While things appear to be settling down for the moment, nobody’s feeling safe. More specifically, Tether, certainly isn’t.
Prepare for a rough ride
Tether, the world’s largest stablecoin, broke below its $1 peg amid panic in the crypto market. Even at press time, the stablecoin stood at the $0.999 mark.
There are growing concerns about whether Tether actually had enough assets to back up its intended $1 peg. Tether, the company of the same name, previously claimed that all its tokens remain backed one-to-one by dollars held in a reserve.
However, after a settlement with the New York Attorney General, it was revealed that Tether relied on a range of other assets. This included commercial paper, a form of short-term, unsecured debt, to back its token. Tether has since reduced the amount of commercial paper in its reserves and says it plans to lower its holdings further over time.
Did it work? Well, no, as the token stands far from it…
Addresses holding $100k to $10 million in crypto‘s largest stablecoin neared three-year lows, in terms of supply held. In fact, Tether whales now hold the lowest percentage of the stablecoin’s supply since August 2019.
Is there a possibility of this scenario changing? Well, yes. Santiment, in a 7 July tweet added:
However, the short time frame paints a grim scenario for the flagship stablecoin. One reason is, Tether’s closest rival, Circle’s USD Coin (USDC), might be the one making headlines.
USDC is the most-used stablecoin of all when it comes to transferring volume, holding a share of 51.6% on this front. Tether and DAI only have shares of 23.8% and 12.9%, respectively.
Source: Dune Analytics
In fact, two weeks ago, the USDC stablecoin crossed Tether’s USDT by the number of daily transactions on the Ethereum blockchain.
Going from worse to the worst?
Just as things weren’t looking too good for Tether, now, even countries began cracking on the network. For instance, Beijing’s Chaoyang District People’s Court has ruled that stablecoins such as USDT cannot be used for salary payments, the local news agency Beijing Daily reported on 6 July.