Tether’s $9B loss is arch stablecoin rival USDC’s gain

YEREVAN (CoinChapter.com) — Tether (USDT), the crypto world’s biggest stablecoin, briefly broke its peg with the U.S. dollar last week, dropping to nearly 95 cents before recovering. Meanwhile, one of its rivals, dubbed TerraUSD (UST), collapsed entirely.

Circle’s USDC benefits

The ‘depeg’ spree came as a shocker to the crypto industry. It has been increasingly relying on stablecoins for their ability to protect investors from the crypto market’s volatility over claims that real-world collaterals back their entire supply. So, as USDT and UST slip from their dollar peg, so do investors’ trust.

The result is a massive capital drain. For instance, investors took out a little over $9 billion out of Tether reserves in the past seven days. Meanwhile, UST’s market supply has dropped by more than 50%—to $3.48 billion—in the same timeframe.

But unlike its rivals, another stablecoin project, called USD Coin (USDC), experienced an increase in its demand in the past seven days. That resulted in investors pouring almost $4 billion into its reserves, with its market capitalization reaching $52.30 billion as of May 18.

“My understanding is there’s very strong outflow out of some stablecoins but some inflow into other stablecoins,” said Tobias Adrian, director of the monetary and capital markets department at the IMF, adding:

All of that is suggesting it’s time for stablecoins to really become stable.

Tether to accelerate global market crash?

The plunge in Tether reserves reflects investors’ intention to reclaim their dollars for USDT.

Related: Experts warn of recession as global inflation goes over the roof

Therefore, the firm should have at least $80 billion available in its coffers to back its 80 billion USDT supply. If the redemptions continue, Tether could sell its holdings—50% in the U.S. Treasuries and another quarter in corporate debt—to maintain the USDT’s dollar peg.

It also does not help that there have been persistent doubts about whether Tether has the reserves it claims to back its USDT supply. That further boosts distrust among investors, leading to more dollar redemptions and a higher probability that the company would start dumping traditional assets to save its face.

“Even in the face of last week’s farrago, the company has resolutely refused to detail how its seemingly vast reserves are managed, claiming that this amounts to its “secret sauce,” the Financial Times noted in its recent opinion editorial.

“Banks have found, to their cost, that distrust only prompts a rush for the exit. The faith of crypto’s true believers may yet be sorely tested.”

That means USDC’s market share could grow substantially higher in 2022 due to its “regulated” status.