Cryptocurrency company Tether has been reducing the amount of commercial paper in its reserves.
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TetherThe world’s largest stablecoin, broke a peg below $1 on Thursday amid a crypto market panic.
According to data from CoinGecko, the token fell to a low of 98 cents around 3:30 a.m. ET, according to data from CoinGecko. It is meant to be tied 1-1 with U.S. dollar.
Tether’s drop came after terraUSD, another stablecoin, plummeted below 30 cents Wednesday.
Vijay Ayyar, international head at crypto exchange Luno, said the move was likely “speculative fear” caused by the drop in UST.
“The environment is ripe for such news events to cause ripples in the market as we can see,” he told CNBC.
Stablecoins are like the bank accounts of the crypto world, designed to serve as a fair store of value that investors can use during volatile market times. Tether and USDC, the two largest stablecoins, are backed by a large enough amount held in a reserve to ensure depositors can get their dollars when they want to withdraw.
But there have long been concerns about whether tether actually has enough assets to back its projected $1. Tether, the company of the same name, previously said that all of its tokens are backed one-to-one with dollars held in a reserve.
However, after a settled With the New York attorney general, it was revealed that Tether relies on a variety of other assets including commercial paper, a form of short-term, unsecured debt, to back its token. Tether has been there ever since reduce the amount of commercial paper in its reserves and said it plans to reduce its holdings further over time.
Earlier on Thursday, Tether’s Chief Technology Officer Paolo Ardoino asserted that tether holders will always receive $1 when redeeming their tokens.
Around 300 million tether tokens have been withdrawn in the last 24 hours “without a single drop of sweat,” he tweeted.
Bitcoin and other cryptocurrencies took another dive on Thursday as investors reacted to concerns around rising inflation and a deteriorating economic outlook, as well as tether’s decoupling from the exchange rate. its dollar price.
