Stablecoin Tether (USDT) buys back the peg after $ 3 billion in withdrawals

Tether has long faced questions about whether it has enough resources to justify its dollar peg.

Tiffany Hagler | Bloomberg via Getty Images

bindthe largest stablecoin in the world, has regained its anchor at the dollar after more than $ 3 billion worth of tokens left the system in a single day.

Cryptocurrency – which should always be worth $ 1 – sunk from 95 cents Thursday and struggled to return to the expected dollar peg.

By Friday, tether was trading firmly at $ 1 again, calming investor fears of possible contagion in the cryptocurrency market from the collapse of the Terra stablecoin project.

TerraUSD, or UST, differs from tether in that it relies on a complex mix of code and a twin token called luna to stabilize its price. It was also partially collateralized by worth billions of dollars of bitcoin.

Tether, on the other hand, is expected to be backed by cash, short-term debt obligations corresponding to an equivalent amount of dollars deposited by its users. These assets are held in a reserve managed by a company of the same name.

It is essentially like a bank account for cryptocurrency investors, who often turn to the bond in times of increased market volatility. Much bitcoin trading is done in tether.

Tether now has an outstanding supply of approximately $ 79.5 billion, down from $ 82.9 billion 24 hours earlier. suggesting that the company behind it processed over $ 3 billion in redemptions in a single day.

Mati Greenspan, CEO of Quantum Economics, said the Terra debacle “rocked” the cryptocurrency market’s confidence in other stablecoins, such as tether.

“The DeFi [decentralized finance] the market certainly has a lot under the precept that stablecoins can remain stable, so if things start to unravel it could potentially be catastrophic for the industry, “he said.

Paolo Ardoino, Tether’s chief technology officer, turned to Twitter to reassure investors about the strength of his company’s stablecoin.

“We had nearly $ 3 billion [in] refunds and were cleared fairly quickly through our banking channels, ”Ardoino said in a one-hour live audio conversation on Twitter Spaces Thursday.

Ransom demands ranged from as low as $ 100,000 to as high as $ 600 million, he added.

The problem with Terra’s MTS, Ardoino said, was how quickly it grew.

“It’s all fun and games until it becomes a $ 10 billion stablecoin,” he said. “Until you are a $ 5, $ 10 billion stablecoin, even if you have some liquidation because you are backed by a bit of the moon and a small portion of bitcoin, the current cryptocurrency markets are still capable, perhaps, probably, to absorb it. “

“But if you start doubling the size of a $ 20 billion stablecoin … there’s no way the market can absorb this kind of liquidation,” added Ardoino.

Tether has long faced questions about whether it has enough resources to justify its dollar peg. The company previously claimed that all of its tokens were one-to-one dollar-backed held in a reserve.

However, after a settlement With the New York Attorney General, it was revealed that Tether held a number of other assets, including commercial paper, a form of short-term and unsecured debt, in support of its token.

Tether has since reduced how much commercial paper holds and says it plans to further reduce the amount over time. More than 52% of Tether’s assets are now in US Treasury bills and this is expected to increase further when the company discloses the next allocation of its reserves, Ardoino said Thursday.