What happens to crypto if Tether (USDT) collapses?

Key Takeaways:

  • Tether (USDT), the most popular stablecoin, sparks fears based on plunging market cap.
  • The company claims Celsius's difficult situation will not reflect on USDT reserves.
  • However, investors call Tether's 1:1 dollar prop into question.
Tether, What happens to crypto if Tether (USDT) collapses?
image from medium.com

YEREVAN (CoinChapter.com ) – Tether (USDT), the largest stablecoin by market cap, experienced a turbulent month in the wake of the Bitcoin (BTC) dump, Terra (LUNA) implosion, and Celsius balancing on edge. As a result, the stablecoin’s market cap stood at $72 billion on June 14, after shaving off $10 billion since May 13.

USDT in trouble?

Tether (USDT) market cap lost $10 billion in a month. Source: TradingView.com
Tether (USDT) market cap lost $10 billion in a month. Source: TradingView.com

While the stablecoin’s dollar peg has not flinched, its rather shaky market cap and Celsius’s ongoing crisis fueled sell-off fears from investors. However, Tether assured that the lending/borrowing protocol’s possible implosion has nothing to do with the stablecoin.

Also read: Luna 3.0? Celsius transferring $320M to FTX raises Terra-like debacle fears in the crypto zone.

Furthermore, Tether released a statement calling Celsius’s situation an “unfortunate result of market volatility.” The company asserted that Celsius represents a minimal part of its shareholders’ equity.

There is no correlation between this investment and our own reserves or stability. Also, Tether lending activity with Celsius (as with any other borrower) has always been overcollateralized and has no impact on our reserves. 

commented Tether.

However, the crypto community called Tether’s reserves into question.

Will Tether (USDT) stand the storm?

In detail, Tether claims to back its USDT by equivalent dollar reserves. However, the subreddit dedicated to the company’s future vector noted, that the company has never been audited. Also, “everyone and their mother” knows the dollar doesn’t prop USDT 1:1. Thus, the subreddit claimed the crypto market could face ‘dark ages’ if the crisis reaches stablecoin.

Everything in the crypto market is propped up by this shady stablecoin, yes, even BTC. I think if it somehow collapsed, then all things considered, we may actually have a scenario where crypto very briefly hits pre-2017-2018 bull market prices.

speculated the thread.

Also read: Bitcoin (BTC) set to fall below $20K this week on Fed’s 0.75% rate hike FUD.

Tether’s lack of transparency

Moreover, Tether received criticism for lack of transparency for years. In May 2021, Tether released data signifying that cash took merely 3% of the reserves. Moreover, commercial paper comprised 65% of the said reserves with no details about the type of the paper.

The March 2021 report showed different results, where 85% of the reserves included cash and cash equivalents.

Tether, What happens to crypto if Tether (USDT) collapses?

Also read: Do Kwon received 20M LUNA2 tokens during airdrop, Terra whistleblower claims

Thus, not all hope is lost. Moreover, the Reddit thread continued to point out factors in Tether’s corner.

Situations when people redeem tokens en masse usually should happen during market crashes. In the last 4 years we had three significant market crashes – in 2018, in March 2020 and in May 2021. USDT survived all of them.

commented the users.

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