There are 99 problems and Tether is not $1

We don't know why it happens, but it does happen. Tether, the $83 billion foundational liquidity mechanism for the entire cryptofinance universe, is moving away from its dollar peg.

Here is a short, simplified explanation of how Tether works. The company guarantees “verified customers” one-for-one redemptions at $1, with the caveat that redemption could be delayed “if such delay is necessitated by the illiquidity or unavailability or loss of reserves held by Tether to secure the Tether Tokens.” .

Under normal circumstances, the handful of verified customer institutions that can access Tether's primary exchange window would purchase discount coins on the secondary market and then redeem them with Tether at face value, bringing the price back up to $1.

But an ugly decline in the Terra stablecoin since Monday has sparked a synchronized panic across the crypto space, including assets similarly marketed as safe. Rumors of solvency problems are rife among coin custodians, funds and even tradfi shops, raising familiar questions about the exact nature of Tether's reserves and its real protection against a run. In the last few hours, Arb trading does not appear to have taken place.

Still, Paolo Ardoino, CFO of Tether and trading platform Bitfinex, says they have handled a rush of redemptions, but there is no reason to worry:

GM
Reminder that Tether honors USDt withdrawals at $1 via https://t.co/fB12xESSvB.
>300 million redeemed in the last 24 hours without a sweat drop.

– Paolo Ardoino (@paoloardoino) May 12, 2022