Tether says its dollar-pegged token is “fully backed.”
Justin Tallis | AFP | Getty Images
Investors have ripped off more than $10 billion in the past two weeks amid heightened regulatory scrutiny of stablecoins.
Tether, the world’s largest stablecoin, saw its circulating supply plummet from a record $84.2 billion on May 11 to around $73.3 billion on Monday, according to data from CoinGecko. About $1 billion was withdrawn late Friday night.
The cryptocurrency, which is believed to be pegged to the US dollar, temporarily dipped to 95 cents on May 12 after another type of stablecoin, terraUSD – or UST – dipped well below $1. This resulted in a sell-off of the luna token associated with UST, which in turn wiped out over $40 billion in wealth for the holders.
The fallout from the collapse of Terra, the blockchain behind UST and luna, sent shockwaves through the crypto market, with bitcoin and other cryptocurrencies falling sharply. This worries regulators.
“Whenever there is a failure or disaster in crypto, the fear is always that someone will misinterpret the situation and correct too much in a position that is not helpful for the whole community,” said Kathleen Breitman, co-creator of the Tezos blockchain. CNBC.
“Even though I like to see things fail that don’t make sense, there’s always a tinge to it like ‘Are people going to extrapolate from this that anything stablecoin is unhealthy?’ It’s always the big fear.”
Unlike Tether, the UST was not backed by fiat currency held in reserve. Instead, it relied on complex engineering where price stability was maintained through the destruction and creation of UST and its sister luna. Investors were lured by the promise of 20% savings returns from Anchor, Terra’s flagship lending platform, a rate that many investors found unsustainable.
Terra creator Do Kwon had also amassed billions of dollars worth of bitcoins and other tokens through his Luna Foundation Guard fund, but nearly all of the funds ran out in a futile effort to save the UST.
Nevertheless, the panic over UST has drawn attention to other stablecoins, especially Tether.
Regulators and economists have long debated whether Tether has enough assets in its reserves to justify its stablecoin’s alleged peg to the dollar.
The company previously claimed the bond was secured one-to-one by dollars in a bank account, but later revealed it used other assets, including commercial paper – short-term corporate debt – and even digital tokens as collateral after a settlement with the New York. Attorney General.
Last week, Tether said it had reduced the amount of commercial paper it held and increased its holdings of US Treasuries. For the first time, the British Virgin Islands-based company said it also held foreign government debt. Tether declined to comment further on the source of its funds, but said it was pursuing a more thorough audit of its reserves.