The cryptocurrency market has been in turbulence this week. Due to declining prices, billions of dollars worth of cryptocurrencies have been liquidated from the market. The collapse of Terra LUNA and the UST stablecoin adds to the massive losses suffered by most traders.
Tether (USDT) showed slight signs of stress on Wednesday as it slightly dropped below $1 to trade at $0.99 on all major exchanges. The depegging triggered more panic from traders already spooked by the 99% drop in LUNA.
USDT drops to $0.99 on major exchanges
After USDT started showing signs of being unable to hold $1, the Chief Technology Officer of Tether and Bitfinex, Paolo Ardoino, posted on Twitter, assuring the community that they had nothing to be worried about. Ardoino said that more than 300 million USDT tokens were redeemed at the $1 peg value during the past 24 hours.
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In response to questions raised by a news outlet about USDT’s stability, Ardoino said that the stablecoin had maintained its $1 value even in periods of extreme market volatility, adding that redemptions have never been halted.
“Tether continues to process redemptions normally amid some expected market panic following yesterday’s market. In spite of that, Tether has not and will not refuse redemptions to any of its customers, which has always been its practice,” Ardoino said.
The cryptocurrency market is currently in a bearish state where prices almost mimic what happened during the 2018 market crash. The panic has been triggered by the collapse of the UST stablecoin, which is now way below its $1 peg.
Ardoino talked about the key differences between USDT and algorithmic stablecoins such as UST, saying, “Unlike these algorithmic stablecoins, Tether holds a strong conservative and liquid portfolio that consists of cash & cash equivalents, such as short-term treasury bills, money market funds and commercial paper holdings from A-Z and above rated issuers.”
The collapse of UST dampens trust in stablecoins
UST, an algorithmic stablecoin for the Terra ecosystem, started depegging from $1 on Sunday. After recovering shortly after, the stablecoins took yet another plunge, which brought down the value of LUNA. Since then, UST has failed to recover its peg, and it is currently trading at around $0.64.
However, Ardoino does not believe that the trust in stablecoins is lost. “I do not believe that trust was ever lost for centralized stablecoin users. There will always be a market for stablecoins as they present an opportunity for traders to interact with the larger crypto ecosystem.”
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