Tether (USDT), the largest stablecoin in existence and the lubricant that keeps the crypto markets ticking over, briefly fell 2% below its US$1 peg in the past hour.
While stablecoin depeggings are common, anything greater than a fraction of a percent can be worrying.
Purportedly backed by real-world assets (though this has been a point of contention), USDT and other stablecoins are synthetic assets that act as digital representatives of the US dollar.
They solve the problem of price volatility in the crypto markets: With stablecoins, crypto traders can engage with the decentralised finance (DeFi) markets without worrying about noticeable price fluctuations.
Since USDT is/should be backed 1:1 with US dollars or equivalents, a significant drop in USDT’s value could devastate the crypto markets.
To put this into context: The two trillion dollar market rout earlier this year was largely due to the depegging of another stablecoin called TerraUSD (UST).
UST had a market cap of US$18bn preceding its collapse. Tether (USDT) currently has a market cap of US$70bn.
USDT is far and away the most traded cryptocurrency, with recent daily volumes exceeding US$130bn.
#tether processed ~700M redemptions in last 24h.
No issues.
We keep going.
— Paolo Ardoino ???? (@paoloardoino) November 10, 2022
Tether’s chief technology officer Paolo Ardoino sought the assure the market online, and Tether has stated that it had no exposure to FTX prior to collapse.