Cryptocurrency company Tether is reducing the amount of commercial paper in its reserves.
Jakub Porzycki | Nurphoto | Getty Images
TetherThe world’s largest stablecoin fell below its $ 1 peg on Thursday in a crypto market panic.
Tokens fell to 95 cents on some exchanges around 3:15 am on ET. This is intended for one-on-one pegs. USD.. It traded at $ 0.998 in the afternoon, according to Coin Metrics.
The first decline of tether occurred after another stablecoin, terraUSD. Plunge to less than 30 cents On Wednesday, it led to a potential market transmission threat. TerraUSD, or USD, differs from tether in that it relies on the code rather than the funds held as reserves to support the expected pegs to the greenback.
Vijay Ayyar, International Head of Cryptocurrency Exchange Luno, said the move by tether is likely to be a “speculative-led horror” due to the failure of the UST plunge.
“As we can see, the environment is ripe for such news events to cause ripples across the market,” he told CNBC.
Nicolas Bonnet, crypto operations manager at French broker Aplo, said some traders are taking advantage of the decline in tethers through arbitrage. Basically, buy a token for less than $ 1 and exchange it for $ 1.
“Early this morning, the liquidity pool that allowed tethers to be exchanged for others was almost empty,” he said.
“It could have created a short-term panic spiral effect, as people saw that the tether was trading under the pegs and there was no quick way to get out of the tether.”
Stablecoin is like a global bank account for cryptocurrencies and is designed to act as a healthy store of value that investors can rely on during market volatility. The two largest stablecoins, Tether and USDC, aim to hold enough reserves so that depositors can receive dollars when they want to withdraw.
However, there has long been concern about whether Tether actually has enough assets to back up the intended $ 1 peg. Tether, the company of the same name, previously said that all tokens are backed one-on-one by the dollars held in reserves.
however, settlement Together with the Attorney General of New York, it became clear that Tether relied on a variety of other assets, including commercial paper (a form of short-term unsecured debt), to support its tokens.Tether ever since Reduced the amount of commercial paper With that reserve, it says it plans to further reduce its holdings over time.
Earlier Thursday, Tether Chief Technology Officer Paolo Ardoino claimed that tether owners would always receive $ 1 when redeeming tokens.
He tweeted that about 300 million tether tokens have been withdrawn “without sweat” in the last 24 hours.
Tether issued later statement “In the expected market panic, we’re back in business as usual,” he said. The company said it plans to process more than $ 2 billion in redemptions on Thursday.
“Tether maintains stability through multiple Black Swan events and highly volatile market conditions,” the company said.
“Even in the darkest times, Tether has never never respected a reimbursement request from a verified customer. Tether will continue to do so. This is always customary.”
Bitcoin Other cryptocurrencies plunged further on Thursday as investors responded to rising inflation, worsening economic outlook, and concerns about tether decoupling from dollar pegs.