Crypto is crashing as Bitcoin, the largest cryptocurrency that leads the market’s price movements, is down 29 percent over the past week, with just about every other coin feeling the pain as well. Making matters worse, the Terra blockchain’s stablecoin UST—which as a stablecoin should always be $1—violently collapsed this week, trading for $0.60 as of this writing.
Stablecoins exist to bring some stability to the volatile crypto market, as their name implies. On Thursday, multiple stablecoins were feeling the pressure and either de-pegged entirely or wobbled both under and over their $1 peg.
Tether (USDT) briefly depegged from its usual $1, falling as low as $0.95 on Thursday morning. Although it’s now back to $1, the short period of depeg was enough to refuel anxiety over crypto’s largest stablecoin.
“Tether [...] is business as usual amid some expected market panic following this week’s market movements,” Tether’s spokesperson said in a statement shared with Motherboard.
A UST-like collapse of Tether is one of the greatest sources of anxiety in crypto because the stablecoin has a market cap of $81.6 billion—the biggest share of the $170 billion stablecoin market. The idea is that Tether (the company) will redeem anyone’s USDT for $1 USD. Tether once promised that its tokens were backed 1:1 with actual U.S. Dollars, but that story changed over the years to include some unclear mix of various assets. That Tether may not have as much in its reserves as it claims, among other beliefs, has given birth to what crypto-believers have labelled “Tether truthers.”
“Tether continues to process redemptions normally amid some expected market panic following yesterday’s market. In spite of that, Tether has not and will not refuse redemptions to any of its customers, which has always been its practise. On Bitfinex the Tether peg is [over] 1$ while on Kraken it is slightly lower than 1$,” a Tether spokesperson said in an email.
The price difference on different platforms has led to arbitrage trader buying USDT cheap on Kraken and selling it on Bitfinex for profit, Tether said, “While other market makers have bought USDT [below] 1$ on Kraken and directly redeemed it for 1$, still enjoying the profit. But all this is pure market dynamics and has absolutely nothing to do with the value of Tether which continues to hold its peg,” the spokesperson added.
But not everyone has taken advantage of Tether’s redemption policy. The depeg panic spurred the unknown controller of a crypto wallet to exchange 15.5 million Tether (USDT) for 6.1 million USDC, another stablecoin that’s maintained its peg. The trader has los $9.4 million in the process both due to the unfavourable exchange rate (normally 1:1 since both are stablecoins) and also trading fees incurred given the large volume.
FRAX, another stablecoin once allied with UST, has also had a wobbly price action over the past day, hitting as low as $0.96 on Coinbase yesterday. It’s currently within the $0.99-1.01 range, where it normally trades.
Meanwhile, MakerDAO’s stablecoin DAI, which UST’s main man Do Kwon vowed to kill last month, continues to maintain its peg of $1, occasionally trading both slightly below and above $1 on decentralized exchanges like Uniswap due to the high market demand for it. At one point on Thursday morning, according to data from market aggregators CoinGecko and CoinMarketCap, DAI was trading for $0.996.
Ultimately, though, the Tether de-peg was good for DAI and helped it maintain its peg. Nik Kunkel, head of oracles (bridges connecting blockchains to the real world) at MakerDAO, told Motherboard that “the recent death spiral of the UST stablecoin stoked fears in USDT backing.”
“As investors fled USDT into more trusted stablecoins such as DAI and USDC, it drove the price of USDT down to 0.95, This increased demand for DAI and USDC temporarily increased their price and were shortly after arbitraged back to $1,” Kunkel said.
Other than DAI, which seems to have won the stablecoin wars for now, one stablecoin that’s been having a good time is USDC, the second largest centralized stablecoin after USDT.