$10 Billion Leaves USDT- Is The Stablecoin Model Broken?

Tether (USDT), the popular dollar-backed stablecoin, has seen its market cap fall by $10 billion in the past two weeks. This massive drop is largely due to a general loss of faith in stablecoins following the collapse of the Terra Network’s cryptocurrency, LUNA, and its associated TerraUSD stable, UST.

While stablecoins have been praised for their ability to maintain their peg to the greenback, the crash of Terra, which has vaporized billions of dollars in crypto wealth, has called into question their ability to protect investors. According to reports, the UST’s meltdown from $1.00 on May 9 to $0.05 on May 21, was due to a combination of factors, including liquidity issues and market manipulation. However, many are still skeptical of stablecoins and their ability to weather market volatility.

As the industry continues to grow, it’s likely that we’ll see more regulatory scrutiny of stablecoins.

Meanwhile, USDT, the most popular stable in the cryptocurrency market, is once again under pressure. This time, the challenges it faces are more serious than ever before. On May 20, a whopping $1 billion was withdrawn from USDT in a single day, causing its value to fall to $0.95.

This is not the first time that USDT has lost its peg, but it is by far the most significant drop. The question now is not whether USDT – which is still trading below the $1 mark – will be able to recover from these latest setbacks- because it will. The issue is that stables are meant to minimize volatility and always be worth $1.

But despite their critics, stablecoins continue to offer a much-needed service in the cryptocurrency space. In fact, many believe that stablecoins such as Tether, USD Coin, and Binance USD, which are still performing quite well considering the market’s current bearish conditions, will only become more popular in the future as they offer a way to stabilize portfolio value during periods of high market volatility.

As of the time of writing, stablecoins still occupy a significant portion of the top 10 cryptocurrencies by market cap. In total, three out of the 10 largest cryptocurrencies by market cap – USDT, USDC, and BUSD – are stablecoins. This is a testament to the continued popularity and utility of these digital assets.

It’s worth noting that the events of the past few weeks have led to increased scrutiny of USDT and, by extension, all stablecoins. While there is no doubt that stablecoins have a place in the cryptocurrency ecosystem, it remains to be seen whether or not the current model is sustainable in the long run. Regardless of what happens next, it will be fascinating to watch this space evolve.

Price Action

At last check, USDC and BUSD are changing hands at the $1 mark. USDT, the largest stablecoin by market cap, is the only stable out of the three that continues to trade below its $1 value.

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