Tether Peg hiccups are nothing new

Tether Peg hiccups are nothing new

The price of stablecoin Tether (USDT) briefly fell to 97 cents on Thursday, according to data compiled by Blockworks, raising fears about the stability of its peg to the U.S. dollar.

A downtrend in crypto asset markets – spurred this week by FTX and Alameda Research's solvency crisis – is prompting traders to seek a safe haven in stablecoins.

Tether’s sudden price drop this morning sent traders on alert. However, in times of increased market volatility, temporary price fluctuations are not uncommon.

USDT is considered the backbone of the cryptoasset ecosystem and accounts for almost 9% of the total market capitalization of digital assets. The coin is reportedly backed 1:1 by US dollars and highly liquid assets – maintaining its “peg” to the greenback – although Tether’s track record of transparency has been criticized in the past.

“During periods of market volatility, the trading price of USDT listed on exchanges may fluctuate,” the company said said in a statement.

In fact, in May, following the implosion of the Terra ecosystem and its UST stablecoin, the price of USDT also fell.

“This is happening because there is more liquidity in demand than exists in this exchange’s order books and has nothing to do with Tether’s ability to maintain its peg or the value or composition of its reserves,” the company said.

“Industry critics and skeptics have done themselves an injustice by remaining uninformed and jumping to conclusions,” he added.

Tether's price is also reflected in on-chain liquidity, primarily through the Curve 3Pool on Ethereum – which holds a significant amount of liquidity on the three largest stablecoin assets DAI, USDC and USDT – where changes in supply and demand can influence the price of Tether.

Early Thursday, Curve's 3Pool became unbalanced, a sign that some industry participants were beginning to short Tether.

A higher percentage of USDT in the pool reflects a decline in the relative value of USDT compared to USDC and DAI.

In general, the ability for large market participants to redeem USDT for dollars makes such de-pegs short-lived.

In fact, Tether Chief Technology Officer Paolo Ardoino, tweeted that the company "processed ~700 million redemptions [the] last 24 hours. No issues. We're moving forward," he said.

The company further confirmed that it has not provided any credit to FTX or Alameda Research – and that its tokens are 100% backed by reserves that exceed liabilities.

As of this writing, USDT's share of the Curve pool has declined to 67%, with approximately $670 million in liquidity available.

"Trust is built over years but can be lost in a few moments. It's easy to wonder who else might fail when big and trusted players suddenly go under," Tether said. “Tether will continue to allay fears and address community concerns.”

Since plunging this morning, Tether's price has recovered $1.01.

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The post Tether Peg Hiccups Are Nothing New is not financial advice.