Traders withdraw $10bn as regulators heighten concerns regarding the assets backing Global Stablecoins
- The leading four Stablecoins by market capitalization declined in May
- Tether’s circulating supply fell from a record high of $84 billion to approximately $73 billion
- Regulatory concerns surged following the collapse of the third largest Stablecoin, UST
- While Tether experienced outflows, its competitor, USD Coin, noted a 5 percent increase in funds during the same time frame
Traders withdraw $10bn as regulators heighten concerns regarding the assets backing Global Stablecoins.
Tether, the largest Stablecoin in the world, has witnessed its circulating supply plummet from a high of $84.2 billion on May 11 to around $73.3 billion as of Monday amidst intensified regulatory scrutiny over Stablecoins.
Tether, which aims to maintain a one-to-one peg with the dollar, temporarily dropped to as low as 95 cents on May 12 after another Stablecoin, TerraUSD, sank well below $1. This triggered a sell-off in UST’s related Luna token, which resulted in more than $40 billion being wiped from holders’ wealth.
In contrast to Tether, UST was not backed by fiat currency held in reserves. Instead, it relied on a complex system where price stability was achieved through the creation and destruction of UST and its sibling token, Luna.
The repercussions of the collapse of Terra, the blockchain responsible for UST and Luna, have reverberated throughout the crypto market, drawing attention to other Stablecoins.
Regulators and economists have consistently questioned whether Tether possesses sufficient assets in its reserves to support its Stablecoin’s claimed dollar peg.
Fabio Panetta, a member of the executive board at the European Central Bank, made remarks on this issue in a speech on Monday.
“There is no assurance that Stablecoins can always be redeemed at par — just last week, the world’s largest stablecoin temporarily lost its dollar peg,”
Panetta noted that holders of stablecoins lack access to deposit insurance for recovering potential losses, and operators were unable to utilize bank standing facilities, exposing the tokens to runs. He highlighted the collapse of TerraUSD, once among the top five stablecoins, as a case in point.
“It is misleading to think that private instruments can serve as money when they cannot consistently be converted into public money at face value,” he reiterated.
In contrast to Denmark-based e-Money.com’s suite of European Stablecoins that are 100% backed by actual bank deposits and government bonds at commercial banks, UST lacked such backing. Its reliance on complex mechanisms for price stability, alongside enticing investors with promises of 20% returns via Anchor, Terra’s leading lending platform, proved to be unsustainable for many.
Recently, Tether asserted that its Stablecoins are backed one-to-one by dollars in a bank account; however, it later disclosed that it was utilizing various assets like commercial paper — short-term corporate debt — and even digital tokens as collateral following a settlement with the New York attorney general.
Last week, Tether revealed that it had decreased its commercial paper holdings while increasing its investments in U.S. Treasury bills. For the first time, the British Virgin Islands-based firm disclosed holdings in some foreign government debt. Tether declined to provide further details on the origin of its funds but mentioned that it is striving for a more comprehensive audit of its reserves.
USDC has expanded by 20%, adding $10.6 billion in circulation, whereas USDT has seen a reduction of about $4.1 billion, equating to a 5% decrease.
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