Like Terra’s UST, another stablecoin lost peg and you’ll freak out when you see which one


  • Tether has nosedived as low as $0.96, losing its $1 peg amidst a marketwide bloodbath. 
  • The depeg of Terra’s UST sparked fears of stablecoin collapse among investors, fueling a bearish sentiment on stablecoins like USD Tether. 
  • $300 million in USDT has been exchanged for USD, as Tether.io honors redemptions. 

Tether plummeted to $0.96 during Asian trading hours on Coinbase, losing its $1 peg. The largest stablecoin by market cap appears to be following the path of algorithmic stablecoin TerraUSD (UST), which collapsed to $0.29 on May 11, 2022. 

Also readIs MicroStrategy facing possible bankruptcy on Bitcoin collapse?

Tether loses its peg, struggles to recover 

The recent collapse of TerraUSD (UST) has triggered a negative sentiment among stablecoin holders. 

Crypto investors are bearish on stablecoins in the recent bloodbath. Billions have been wiped off the market capitalization, and stablecoins like USD Tether (USDT), USD Coin (USDC), Binance USD (BUSD), DAI have lost their $1 peg. 

As USDT loses its peg, $300 million has been exchanged for USD. So far, Tether.io has honored all redemption requests. 

Paolo Ardoino, CTO of Bitfinex and Tether, reminded his 129,500 followers that Tether.io had honored redemption requests despite high volatility in the market. 

A Tether spokesperson told Blockworks in an email, 

Tether has withstood multiple ‘black swan’ events in cryptocurrency. The collapse of the UST peg is one of those events. We’re proud to say that the 1:1 peg to the dollar on USDT has been successfully maintained, and Tether has never once failed to honor a redemption request from a verified user.

Experts weighed in on where Tether is headed after losing its peg and how other stablecoins could suffer the impact of USDT’s price drop. Brad Yasar, CEO of DeFi platform EQIFI, does not believe that the stablecoin market as a whole will suffer. Yasar was quoted as saying,

The asset-backed stablecoins — as long as their reserves match the number of coins in circulation — are not prone to de-pegging by market movements. Algorithmic stablecoins that are not asset-backed so far have been de-pegged by violent market movements.

Regulators Janet Yellen, US Treasury Secretary and Jerome Powell, Chair of the Federal Reserve, noted that the growing size of stablecoins has created a situation where vast amounts of US-dollar equivalent coins are being exchanged without touching the banking system. Regulators have warned investors of a situation similar to a bank rank. 

Tether is considered a pathway for new entrants and investors in the crypto ecosystem, where USD deposits and other cryptocurrencies can be redeemed for USDT. Tether finds massive utility across cryptocurrency exchanges, DeFi, lending pools, wallets, payment processors and financial services. 

The combined Total Value Locked (TVL) of the DeFi ecosystem is currently $61.56 billion. Decentralized exchange pools and protocols holding these funds could fall apart in response to Tethers depeg. As investors rush to exit liquidity provider positions and traders identify arbitrage opportunities, all protocols dependent on liquidity pools could suffer a dent and rapidly lose TVL. 

Michaël van de Poppe, a leading analyst and crypto YouTuber, believes a collapse in USDT is unlikely. The loss of the stablecoin’s $1 peg was sparked by the rush and panic from the colossal crash of UST. The analyst argues that the stablecoin’s price drop is temporary, and USDT is likely to reclaim its peg soon. 

 


Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended Content

Editors’ Picks

Bitcoin Price Forecast: Analysts anticipate increased volatility as the US presidential election looms

Bitcoin Price Forecast: Analysts anticipate increased volatility as the US presidential election looms

Bitcoin price teased its all-time high of $73,777 last week but declined to trade below $69,000 on Monday. Analysts suggest that market volatility is expected to rise as the US presidential election approaches.

More Bitcoin News
Litecoin poised for double-digit decline after breaking ascending trendline

Litecoin poised for double-digit decline after breaking ascending trendline

Litecoin breaks and closes below an ascending trendline, signaling a change in market structure. On-chain metrics paint a bearish picture, as LTC’s dormant wallets are active, and the NPL indicator shows a negative spike.

More Litecoin News
Top 3 Price Prediction Bitcoin, Ethereum, Ripple: BTC, ETH and XRP decline ahead of US elections

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: BTC, ETH and XRP decline ahead of US elections

Bitcoin (BTC), Ethereum (ETH), and Ripple (XRP) all faced resistance at crucial levels ahead of the US Elections, leading to a price decline. As of Monday, they neared key support levels, and a firm close below these marks could signal further declines.

More Cryptocurrencies News
21Shares files S-1 for XRP ETF amid ongoing tension between Ripple and SEC

21Shares files S-1 for XRP ETF amid ongoing tension between Ripple and SEC

21Shares filed an S-1 registration with the Securities and Exchange Commission (SEC) on Friday for an XRP exchange-traded fund (ETF). While the chance of approval is slim with the current SEC administration, the landscape could change after the upcoming elections.

More Cryptocurrencies News
Bitcoin: New all-time high at $78,900 looks feasible

Bitcoin: New all-time high at $78,900 looks feasible

Bitcoin price declines over 2% this week, but the bounce from a key technical level on the weekly chart signals chances of hitting a new all-time high in the short term. US spot Bitcoin ETFs posted $596 million in inflows until Thursday despite the increased profit-taking activity.

Read full analysis
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

BTC

ETH

XRP