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Tether, the company behind the largest stablecoin by market capitalization USDT, has seen a reduction in the asset’s circulating supply after investors withdrew over $7 billion from it.
Investors Losing Confidence in Stablecoins
Data from CoinGecko shows that USDT’s circulating supply is currently at $75.9 billion, which is a reduction from around $83 billion a week ago, according to CNBC.
The development came shortly after USDT briefly lost its peg to the US dollar on some exchanges, dropping to $0.96 in the wake of the Terra UST saga. Although USDT has regained its dollar parity on trading platforms, investors seemed to have lost some confidence following a withdrawal of $7 billion from the stablecoin.
Tweeting earlier on May 17, Ki Young Ju, the CEO of crypto analytics tool CryptoQuant, asked Tether’s chief technology officer (CTO) Paolo Ardoino if the $75 billion in circulation were fully backed. In response, Ardoino said:
“We have redeemed 7B in 48h, without the blink of an eye. How many institutions can do the same? We can keep going if the market wants, we have all the liquidity to handle big redemptions and pay all 1-to-1. Yes, Tether is fully backed.”
Tether’s stablecoin reserve has come under criticism, with arguments as to whether USDT is indeed backed 1:1 to the US dollar. Meanwhile, the company has been reducing the amount of commercial paper backing USDT in the last six months.
The latest reduction happened earlier in May, with the Tether CTO stating that the stablecoin issuer will continue to cut down on its commercial paper holdings. Ardoino, meanwhile, noted that most of the firm’s reserves are held in U.S. Treasuries.
USDT was trading below (and above) its $1 peg on various exchanges – a result of specific market dynamics. This created arbitrage opportunities where users could buy it cheaper on one platform and sell it for profit on another.
However, it is very important to note that Tether’s CTO confirmed on multiple occasions that the company backing USDT – Tether – continued redeeming the stablecoin at its value ($1), meaning that the peg remained unfazed.
More Stablecoins Depeg After Terra’s UST
CryptoQuant CEO also asked the Tether CTO when the company would provide an audit for USDT, which echoes earlier statements from members of the crypto community. However, Ardoino said the firm is working on an audit, adding, “hopefully, regulators will push more auditing firms to be more crypto friendly.”
Following the UST price plunge, other stablecoins also lost their peg. Two of such stablecoins, Fantom USD (fUSD) and Dei (DEI), deppeged, which caused a massive loss for DeFi protocol Scream.
The project failed to adjust the prices of fUSD and DEI. This mistake caused it to incur a bad debt of $35 million. In a tweet thread, Scream said it was working on a solution, adding that the Fantom Foundation was planning to run a liquidation bot to tackle the issue.
Scream also mentioned that the platform will hardcode fUSD to $0.81. However, that could pose more problems, as the price of fUSD has further dipped to $0.74 at the time of writing.