Investors recently sold over $1.6 billion of Tether (CRYPTO: USDT), dropping its market capitalization to $70 billion.
What Happened: On the heels of a cryptocurrency crash, Tether saw an outflow of $1.6 billion of funds. This capital pull-out coincided with the recent crash of Terra’s stablecoin UST (CRYPTO: UST), which created uncertainty around stablecoins.
In the past, investors have scrutinized Tether and the efficacy of its collateral reserves. The cryptocurrency sector overall has also experienced a major sell-off bringing its market capitalization to below $1 trillion, around one-third of its all-time high.
On June 13, Tether de-pegged to $0.9978. Adding to the uncertainty is Tether's partnership with Celsius Network, a major cryptocurrency lending platform that announced its halting of withdrawals. There were also rumors that Tether possesses commercial paper holdings, which perpetuated the sell-off. Tether rejected the claims via Twitter.
Why It’s Important: Following the de-pegging of UST, investors are apprehensive about the reliability of stablecoins (although Tether operates differently from the algorithmic nature of UST). Analysis of their reserves reveals that Tether’s collateral reserves are approximately $70 billion, constituting US Treasury bonds, commercial paper, and cash. These reserves are less than that of rival stablecoins, Binance USD (CRYPTO: BUSD) and USD Coin (CRYPTO: USDC), giving Tether a comparatively higher margin risk.
As uncertainty in the crypto market continues, Tether investors would be wise to proceed with caution.
