Tether’s stablecoin USDT has lost its dollar peg after two major pools for stablecoin trading became heavily imbalanced.
On-chain data shows traders have been exchanging millions of dollars worth of USDT for other popular stablecoins like USDC and DAI on Uniswap and Curve pools.
On Thursday, USDT balances on Curve’s popular 3pool, a stablecoin swapping pool comprised of USDT, USDC, and DAI, rose to over 70%, suggesting traders had swapped tens of millions of USDT for USDC and DAI.
he ideal balance of the Curve 3Pool should be 33.33% for each of the three stablecoins – USDT, USDC and, DAI.
However, the imbalance has led to a substantially larger USDT balance on Curve’s 3pool compared to other stablecoins. As of now, the pool holds over $300 million of USDT and nearly $55 million each of DAI and USDC.
USDT Loses Peg as Selling Pressure Intensifies
The selling pressure has also led to USDT distancing away from its intended peg of $1.
At the time of publication, USDT is trading at $0.996788, down by 0.4% over the past day, according to data by CoinGecko.
In a recent tweet, Tether CTO Paolo Ardoino said markets “are edgy in these days, so it’s easy for attackers to capitalize on this general sentiment.”
“But at Tether we’re ready as always. Let them come. We’re ready to redeem any amount.”
t is worth noting that this is not the first time Curve 3Pool has become imbalanced.
Back in March, the pool became imbalanced when USDC and DAI’s ratio increased to over 45% each.
It also became imbalanced in November last year when the crypto exchange FTX collapsed.
A similar imbalance was also observed after the Terra ecosystem’s crash in May 2022, which saw USDT turn volatile and temporarily lose its peg.
Historically, there have been a lot of controversies surrounding Tether, with many questioning claims that it has enough reserves to justify its one-to-one peg claim, as well as the quality of assets making up those reserves.
USDT Recoups Lost Market Cap
The recent selling pressure on USDT comes days after the largest stablecoin in the market saw its market capitalization hit a new record high, exceeding $83.2 billion.
The stablecoin managed to recover the $20 billion in market value it had lost following the collapse of rival stablecoin TerraUSD last year.
While Tether has managed to recover the market value it lost last year, other stablecoins have not been this successful.
For instance, USDC, the second-largest stablecoin, currently has a market cap of around $29 billion, far less than its all-time high record of over $56 billion, according to data by CoinGecko.
Data by Glassnode further shows that USDT currently commands a market share of more than 65%. Other major stablecoins, including USDC, BUSD, and DAI each command a market share of around 24%, 5%, and 4%, respectively
Image Source: Glass node
Tether (USDT), the world’s largest stablecoin, lost its dollar peg on Thursday morning, falling as low as $0.99 on some exchanges. The sell-off was triggered by a massive sell-off on Curve, a decentralized exchange that allows users to swap between different stablecoins.
In a tweet, Uniswap, another decentralized exchange, suggested that users shift to other stablecoins, such as USDC and DAI. USDC is a stablecoin that is backed by US dollars, while DAI is a decentralized stablecoin that is backed by collateralized debt positions.
The sell-off in Tether comes amid a broader sell-off in the cryptocurrency market. Bitcoin, the world’s largest cryptocurrency, has fallen by more than 20% in the past week. The sell-off has been triggered by a number of factors, including rising interest rates, inflation, and the ongoing war in Ukraine.
The loss of peg in Tether is a major blow to the cryptocurrency market. Tether is seen as a safe haven asset, and its depegging could lead to further sell-offs in the market.
Here are some of the reasons why Tether lost its peg:
- Concerns about Tether’s reserves: Tether has been criticized for its lack of transparency about its reserves. The company has said that its reserves are backed by a combination of cash, loans, and other assets, but it has not provided a detailed breakdown of its holdings. This lack of transparency has led to concerns that Tether may not be fully backed, which could lead to a run on the stablecoin.
- The collapse of TerraUSD: The collapse of TerraUSD, another algorithmic stablecoin, has also shaken confidence in Tether. TerraUSD was supposed to be pegged to the US dollar, but it lost its peg and crashed to zero in May. This event has raised concerns about the stability of all algorithmic stablecoins, including Tether.
- The broader sell-off in the cryptocurrency market: The sell-off in Tether is also part of a broader sell-off in the cryptocurrency market. Bitcoin, the world’s largest cryptocurrency, has fallen by more than 20% in the past week. This sell-off has been triggered by a number of factors, including rising interest rates, inflation, and the ongoing war in Ukraine.
The loss of peg in Tether is a major blow to the cryptocurrency market. Tether is seen as a safe haven asset, and its depegging could lead to further sell-offs in the market. It remains to be seen whether Tether will be able to regain its peg and restore confidence in the stablecoin.
