The world’s premier stablecoin, Tether, has regained its dollar peg just months after the fateful collapse of Terra. In a move that is being seen as a positive sign for the embattled crypto industry, Tether is reminding investors that things might just look up after all… or will they?
The Start of Bank Run
Back in May, when Terra’s investors pulled a bank run, the company just about fell apart. This led to a domino effect across the entire crypto industry, pushing down once great hedge funds like playing pieces. Voyager fell, Celsius declared bankruptcy, and crypto’s greatest performing assets fell to lows unseen in years.
But now, there seems to be a ray of light above the horizon. Clara Medalie, research director at crypto data provider, Kaiko, had this to say about the state of Tether in the crypto market,
“The past two months have definitely been a stress test for stablecoin following the collapse of UST and a sharp contraction in USDT’s market cap. Tether proved its ability to process billions in redemptions, despite lingering questions over the makeup of its reserves.”
A Tanking Stablecoin
The chaos surrounding stablecoins all started on a fateful evening on May 12, when Terra’s UST spurred a litany of panic selling for the next few days. This single but profound sell-off collapsed the entire crypto market, but not for the reasons many may know.
During that time, Tether also lost its peg to the dollar, and only now is it recovering. This domino effect that led to one stablecoin collapsing after the other, made a lot of people realize that perhaps the stablecoin isn’t so stable after all. Perhaps the great majority of crypto firms don’t have the assets in backing that they say they do.
This fear and doubt in the stablecoin market led to Tether’s market cap falling from a whopping $65 billion to a mere $16 billion in the span of just two months. This means, that USDT and Tether LTD followed through and honored billions of dollars worth of liquidations, following the collapse of UST.
What does this mean in the world of today as markets continue to struggle?
Maybe There Is Hope For Tether
There may just be hope for Tether and the use of stablecoins, so long as they are able to put in a structure of auditing to protect investors. At the time of writing, an auditing structure is well on its way to becoming a bill in the halls of Washington.
The moral of the story with Tether losing its peg and regaining it through the use of smart investing is that Tether has passed the litmus test.
In a catastrophic event where investors needed their money in liquid, Tether was able to use its extensive bank pockets to reimburse everyone who needed their funds. Since then, Tether has maintained its position that keeps reserves for all of its stablecoins, regardless of market conditions.
Just last May, Tether LTD published an audit report from MHA Cayman, illustrating to investors that they held $39.9 billion in Treasurys, $4.1 billion in bank deposits, $6.7 billion in money market funds, and an additional $3.1 billion in secured loans.
Let’s hope all these numbers aren’t just figments of someone’s imagination out on the beaches of the Cayman Islands. As of right now, it looks like Tether might just be telling the truth.