Failing domino is the most accurate phrase to describe the current state of crypto market. First, the collapse of the algorithmic stablecoin TerraUSD (UST) sent shockwaves throughout the market. Following that, USDT wobbled off the peg, raising concerns about its role as a sustainable shelter. While things seem to be settling down for the moment, no one feels safe, especially for USDT.
A rough ride awaits
Despite being the largest stablecoin, USDT has been losing the peg of $1 amid the crypto market panic. Even at the time of this writing, it only cost $0.9995.
Simultaneously, there are many worries about whether Tether will actually have enough reserve assets for the $1 peg. Previously, the company claimed all of its tokens were backed one-to-one dollars held in a reserve.
However, after a settlement with the New York Attorney General, Tether was exposed to relying on a variety of other assets to back its token. This includes commercial paper, a form of short-term unsecured debt. Since then, Tether has gradually reduced the amount of commercial paper in its reserves and said it plans to reduce its holding further over time.
On the other hand, the number of addresses holding between $100,000 and $10 million USDT is dropping to a 3-year low. In fact, Tether whales now hold the lowest percentage of USDT supply since August 2019.
Is this scenario likely to change? In a July 7 tweet, Santiment said:
“If $USDT begins being accumulated again, as we saw in last year’s summer rebound, the buying power increase would be a great sign.”
However, the short-term timeframe paints a dire outlook for the leading stablecoin. Because USDT’s closest competitor, USDC of Circle, is likely to enthrone it as reported by Bitcoin Magazine.
USDC is the most-used stablecoin when it comes to transferring volume, holding 51.6% of the market share in the field. Meanwhile, USDT and DAI account for only 23.8% and 12.9%, respectively.
In fact, two weeks ago, USDC surpassed USDT in the number of daily transactions on the Ethereum blockchain.
Not only that, even countries started cracking USDT. The most notable name is China. Recently, Beijing’s Chaoyang District People’s Court has ruled that stablecoins like USDT cannot be used for salary payments, as reported by Beijing Daily on July 6.
(Reference: AMBCrypto)
Disclaimer: This article is for reference purposes only, not investment advice.
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