Tether has long faced questions about whether it has enough assets to justify pegging its price to the dollar.
Tiffany Hagler | Bloomberg via Getty Images
Cryptocurrency – means always $1 worth – sink as low as 95 cents on Thursday and struggled to climb back to its expected dollar peg.
On Friday, tether was stably trading at $1 back, allaying investors’ concerns about the potential for crypto market contagion due to the collapse of the stuck stablecoin project. Terra.
TerraUSD, or UST, differs from Tether in that it relies on a complex combination of tokens and a sister token called luna to stabilize its price. It is also partially mortgaged by worth billions of dollars of bitcoins.
On the other hand, Tether is said to be backed by cash, short-term debt obligations corresponding to an equal amount of dollars deposited by users. Those assets are held in a reserve fund managed by a company of the same name.
It’s basically like a bank account for crypto investors who often turn to tether during times of market volatility. Many bitcoin transactions are done using tether.
Tether currently has a circulating supply of around $79.5 billion, down from $82.9 billion 24 hours earlier. shows that the company behind it processed more than $3 billion in acquisitions in just one day.
Mati Greenspan, CEO of Quantum Economics, said the Terra incident has “shaken” the crypto market’s confidence in other stablecoins, like tether.
“DeFi [decentralized finance] the market certainly has a lot of ground on the notion that stablecoins can stay stable, so if things start to unravel, it could be potentially catastrophic for the industry,” he said.
Paolo Ardoino, Tether’s chief technology officer, took to Twitter to reassure investors of the soundness of his company’s stablecoin.
“We’ve got pretty much 3 billion dollars [in] Acquisitions and they were liquidated fairly quickly through our banking channels,” Ardoino said in an hour-long Twitter Spaces live audio chat on Thursday.
Buyback requirements range from a minimum of $100,000 to $600 million, he added.
The problem with Terra’s UST is how quickly it grows, Ardoino says.
“It’s all game and fun until you’re a $10 billion stablecoin,” he said. “Until you’re a $5.10 billion stablecoin, even if you have some liquidation because you’re backed by some luna and a fraction of bitcoin, the crypto markets are now still can, probably will absorb that.”
“But if you start to double down to a $20 billion stablecoin… there is no way the market can absorb these kinds of liquidations,” Ardoino added.
Tether has long faced questions about whether it has enough assets to justify pegging its price to the dollar. The company previously said all their tokens are backed 1-1 by dollars held in a reserve.
However, after a settled With the New York attorney general, it was revealed that Tether holds a host of other assets — including commercial paper, a form of short-term, unsecured debt — to back its token.
Tether has been there ever since how much commercial paper to reduce? it holds and says it plans to reduce the amount further over time. More than 52% of Tether’s assets are now in U.S. Treasury bills, and that number is expected to grow even more when the company discloses its next reserve breakdown, Ardoino said on Thursday.