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Tether Takes Victory Lap After Stablecoin Regains Peg

By Olga Kharif

Amidst worries that Tether, the world’s biggest stablecoin, was losing its 1-to-1 peg to the dollar, Paolo Ardoino stepped in to reassure investors. Tether’s chief technology officer emphasized that the private company behind the coin that plays a critical role in the crypto ecosystem had no problem with redemptions, including even a $600-million repayment in the last 24 hours.

“Actually the peg was not broken,” Ardoino said on Twitter Spaces Thursday. “It would have been broken if Tether didn’t honor redemption at $1.” Ardoino spoke for an hour together with crypto pioneers Samson Mow, chief executive office of Jan3, and Adam Back, CEO of Blockstream.

Soon after the Twitter Spaces ended, Tether -- known as USDT -- regained its peg, which briefly dropped to 94.55 cents earlier in the day, its lowest level since December 2020. Crypto markets slumped today partly on worries about the future of Tether, where traders park their funds in times of high volatility: About half of all Bitcoin is bought with USDT, per CryptoCompare. A much smaller stablecoin, TerraUSD, known as UST, collapsed this week, and many traders worried that others may follow. Some new crypto users also may have confused UST with USDT.

“That is definitely part of the confusion,” Mow said. “There’s a lot of Tether fud flying around. There’s just a massive confusion and panic in the market.” Bitcoin is down by more than 20% in the last seven days, according to CoinMarketCap.

Much of the Spaces discussion, attended by more than 1,500 people, focused on how Tether is different from TerraUSD. UST’s peg was supposed to be maintained via algorithms and trading incentives, and partly relied on Bitcoin reserves. Tether, meanwhile, keeps more than half of its reserves in U.S. Treasuries, Ardoino said. So when many people want to redeem funds, Tether can sell the securities quickly and comply -- something that UST couldn’t do.

“The worst-case scenario, Tether just shrinks,” Ardoino said. 

Tether’s reserves management is shrouded in mystery, and it settled with New York Attorney General for making false statements about its reserves.

The Tether website on a laptop computer arranged in Dobbs Ferry, New York, U.S., on Saturday, May 22, 2021. Photographer: Tiffany Hagler-Geard/Bloomberg (Bloomberg)

Ardoino said that UST’s mistake was in growing too fast to ensure reimbursements could happen even if crypto prices fell. Its usefulness was also limited to yield farming -- users invested it into decentralized finance to earn a yield of up to 20% -- and it wasn’t used in payments or trading, Ardoino said. Tether, meanwhile, is used to buy everything from everyday essentials to homes.

“There’s a real use case behind Tether, and this is missing from the other projects,” said Mow of Jan3.

Blockstream’s Back blamed venture capitalists behind Terra for causing the stablecoin’s downfall by trying to increase the price of a related token, Luna.

“What they were looking to do is push up the value of the Luna tokens,” Back said. “They use some of Luna to juice some of the interest rates to 20%, to incentivize more people to come in. It looks fun until the music stops.”

The bottom line? 

“This puts everybody on notice that you have to make safer, more robust things,” Back said. “It should impose rationality on the market.”

©2022 Bloomberg L.P.

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Dive Deeper:
Tether Loses Dollar Peg as Crypto Anxiety Hits No. 1 Stablecoin
Dominoes are falling in crypto. First it was the collapse of algorithmic stablecoin TerraUSD, sowing turbulence in the broader market.…
Crypto Market Panic Worsens As Tether (USDT) Loses Dollar-Peg
Market-wide panic ensued after Tether (CRYPTO: USDT) – the largest stablecoin by market cap – began losing its peg to…
Tether Untethers From Dollar: Are The Fears Justified?
Leading stablecoin Tether (CRYPTO: USDT) saw its value fall as low as 95 cents — possibly a price not seen since 2017 — after…
Indian exchanges delist crypto Luna after 100% fall in 7 days
Luna, which was quoting around $80 level till last Saturday was trading at $0.00002446 level on Friday afternoon, showing a…
One subscription that gives you access to news from hundreds of sites
Crypto market takes breather from selloff, Bitcoin nears $31k; Is the worst over?
In Fitch's opinion, there could be significant negative repercussions for cryptocurrencies and digital finance if investors lose confidence in stablecoins.
Bitcoin falls below $26,000, tether briefly edges down from $1 peg
Cryptocurrencies have been hit by a steep stock selloff and the decoupling of a major stablecoin from its peg
Get all your news in one place