Tether loses its peg at $1 exposes its risk and a way to build trust
- Tether survived another market event that saw the stablecoin briefly lose its peg to the US dollar.
- Experts say this could lead to more clarity from the company about which assets back Tether.
- Tether is the largest stablecoin with a market capitalization of $80 billion.
The steady shockwaves rippling through the cryptocurrency market are a red flag for Tether, whether it knows it or not.
After losing its peg to the US dollar on Thursday — falling as low as $0.95 — Tether moved quickly to ease investor concerns. This happened after the implosion of the algorithmic stablecoin Terra which raised fears that others could also be vulnerable.
Tether has since regained its benchmark, but questions remain about how Tether will navigate the new crypto landscape and whether regulators will force their hand.
“Unfortunately, its track record isn’t transparent enough to take comfort in. But as long as it’s considered ‘risk-free,’ it’s risky,” Net Interest newsletter author Marc Rubinstein wrote on Substack.
Tether is the largest stablecoin with an initial market capitalization of $80 billion. It is often used to facilitate crypto transactions due to its appeal as a token backed by highly liquid assets. Tether says it has billions in reserves, including US government debt and corporate bonds, to help process transactions and withdrawals.
Yet details about these corporate bonds, such as the identity of the issuers, remain undisclosed. And Tether is also reluctant to say more about its government debt holdings. In an interview with the Financial Times, Chief Technology Officer Paolo Ardoino declined to elaborate on his US government bonds because he “didn’t want to give away our secret sauce”.
Martha Reyes, head of research at BEQUANT, a digital brokerage and exchange, noted that Thursday wasn’t the first time Tether broke away from the US dollar, but it’s still a clear sign that more regulation and greater visibility in space are needed.
“To allay concerns and encourage more space entrants, ideally he should release more details and regulators could force the issue,” she told Insider.
Meanwhile, a Barclays analyst said in a recent note that Tether’s quarterly updates do not provide timely information on
for a portfolio of short-dated assets.
Granted, Tether revealed on Thursday that it has increased the amount of Treasury holdings, which now make up more than 52% of the company’s assets, and it plans to increase that amount. During this time, he reduced his trade debt. These holdings came to light after a settlement last year with the New York State Attorney General, who alleged that Tether was not fully backed by US dollars at all times.
Tether said it is confident it can continue to deliver on its commitment to its customers and customers.
“Tether has maintained its stability through multiple black swan events and highly volatile market conditions and even in its darkest days, Tether has never failed to honor a redemption request from one of its customers. verified,” the company said in an email to Insider.
In fact, Tether said on Thursday it processed more than $3 billion in withdrawals “pretty quickly,” with redemption requests ranging from $100,000 to $600 million.
Such transparency may not be enough to hold back regulators or the broader crypto market. Although Tether differs from algorithmic stablecoins, which use complex code to create and burn tokens to maintain a peg, it is still at the mercy of the ebb and flow of investor sentiment.
And experts say the market could face tougher regulations that will force Tether to open its books wider.
“Everything crypto, including stablecoins backed by real assets, has been sold off and fears are high that stablecoin regulation is getting tougher,” said Edward Moya, principal market analyst at OANDA.