Lucknow(CoinChapter):Several cryptocurrencies have had to bare the brunt of FTX’s collapse. Recently, questions were raised on whether Tether, the largest stablecoin by market cap, would survive the ongoing market turmoil.
Popular YouTuber and social media user @Coffeezilla, who is well known for voicing opinions against SafeMoon, raised some concerns regarding Tether’s connection to the FTX crisis. The user pointed out that Alameda Research, the sister company of the under-fire FTX exchange, was reportedly the largest on-market user of Tether (USDT).
Several users gasped at the sheer balance of USDT on Alameda’s books (worth $36.6 Billion) and questioned what would happen next. Some even questioned how much Tether can potentially be dumped if Alameda is forced to liquidate all its holdings.
Furthermore, Binance’s halt on customer deposits of USD Coin and USDT on November 17 led to further speculation that the stablecoins’ value could plummet under broader market Fear, Uncertainty, and Doubt (FUD).
Tether Issues Clarification
Amid the hubbub, Tether attempted to distance itself from the FTX collapse altogether. A blog post explained “It is well-known that Alameda was one of the larger issuers of USD₮, and due to this there has been ample discussion of whether the failure of Alameda represents a risk to Tether… The short answer is no”
The blog added that USDT is issued when institutional parties send USD to Tether and Tether issues USDT on a 1:1 basis corresponding to the dollar amount sent. It then converts this USD into collateral. Additionally, the collateral backing Alameda’s USDT is not on Alameda’s balance sheet and is instead, still with Tether. “What can Alameda do with their USD₮? Their only option is to redeem any USD₮ they have for USD via Tether’s redemption facility. This is the same as any other USD₮ holder around the world”, the blog read.
Furthermore, it said that other companies are facing problems as they ‘recklessly’ lent Alameda various assets relying on extremely illiquid collateral, something which the Tether has not done.
Price woes continue?
Despite the clarification, many still question Tether’s ability to weather the crypto storm since it remains the most widely used stablecoin in the market. According to CoinMarketCap, USDT has traded below the $1-mark consistently since early November. This is especially concerning since a de-peg against the dollar essentially makes USDT worthless.
Immediately after FTX’s financial woes came to light, the value of USDT fell to a near 6-month low on November 10, slipping to $0.9978. The last time USDT traded close to this value was in May 2022 following the LUNA crisis.
