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Tether’s circulating supply drops, raising new concerns about stablecoin backing

Investors withdrew more than $9 billion from Tether as it briefly fell from the $1 peg, raising new questions about the reserves that underlie the world’s largest stablecoin.

According to Coingecko data, the circulating supply of Tether has dropped from around $83 billion to $74 billion at press time.

The so-called stablecoins are meant to always have a value of 1 USD. But last Thursday, the price of USDT dropped to as low as $0.95 – amid panic over the collapse of UST and Luna.

Most stablecoins are backed by fiat reserves, meaning they have enough collateral in case users withdraw their funds.

Previously, Tether claimed all of their USDT was backed 1-to-1 with dollars stored in the bank. However, after settling with the New York attorney general, the company revealed that it relies on a range of other assets — including commercial paper, a form of short-term, unsecured debt issued by companies — to support his USDT.

Tether dominates the $160 bilion stablecoin market.
Tether dominates the $160 bilion stablecoin market.

The situation has once again raised new questions about the reserves that underlie the world’s largest stablecoin. Tether previously disclosed its reserves, of which cash accounts for about $4.2 billion of the company’s assets, much of which $34.5 billion consists of unspecified Treasury bills with a maturity date. maturities of less than three months and another $24.2 billion in commercial paper.

According to the LinkedIn profile, the above numbers are released by Tether every quarter.

In 2021, Tether was faced with multiple requests to test its entire reserves.

Responding to a Twitter user who urged Tether to do a full audit, Paolo Ardoino, the company’s chief technology officer, asserted that USDT is “fully backed” and has been ransomed for $7 billion in past 48 hours.

We can go ahead if the market wants to, we have all the liquidity to handle the big buybacks and the one-on-one payout,” he said.

In another tweet, Ardoino said Tether is still conducting audits. “Hopefully regulators will push for more crypto-friendly audit firms,” he said.

The instability of stablecoins has worried regulators. Last week, US Treasury Secretary Janet Yellen warned of the risks to financial stability if stablecoins develop unregulated and urged lawmakers to approve regulation for stablecoins by the end of the year.

In Europe, French Central Bank Governor Francois Villeroy de Galhau said the recent crypto market turmoil should be seen as a “wake-up call” for global regulators.

Cryptocurrencies can disrupt the financial system if left unchecked, especially stablecoins, Villeroy said.

Recently, the European Union is planning to put stablecoins under strict scrutiny, forcing stablecoin projects if they want to operate, they must comply with the law with new rules called “Regulations on Regulations market in crypto-assets” or MiCA for short.

Tether (USDT) is a very important part of the crypto market, facilitating billions of dollars worth of transactions every day. Investors often withdraw to USDT during times of strong market volatility.

Monsur Hussain, head of financial institutions research at Fitch Ratings, said Tether will have “some difficulty” selling off its treasury holdings.

But the origin of those holdings is unclear. In a recent interview with the Financial Times, Tether’s chief technology officer declined to provide details about his treasury holdings, saying that the company did not want to reveal secrets.

The anxiety surrounding Tether seems to have fueled increased demand for rival stablecoins like Circle’s USDC and Binance’s BUSD, whose market value has increased around 8% and 4% respectively over the past week. That’s because these stablecoins are considered “safer” than USDT, experts say.

While Tether is still not large enough to cause disruption in the U.S. currency markets, Tether futures could reach a scale where any “uncertainty” surrounding USDT impacts the market. currency.

Carol Alexander, a professor of finance at the University of Sussex, said: “Later on, if there is a breakdown around Tether, for example USDT losing the $1 mark, it will have a huge impact on the currency markets of the US. America and push the whole world into recession.”