Tether saw its total supply decline sharply this month to $74B. USDT – the largest stablecoin witnessed massive trading in May as investors exchanged the token for the USD.
The news comes after last week’s historic market crash influenced by Terra’s collapse. Terra’s core tokens – UST stablecoin and LUNA crashed by a significant percentage. UST de-pegged to less than $0.9, while LUNA shed over 99% of its value to trade at $0.
Concerns over USDT Rises
Last week’s market crash raised concerns over stablecoin’s position in the crypto space and use cases. Sentiments surrounding the token also grew after the coin de-pegged to $0.95.
USDT has been under intense selling pressure because of the crash, with the total supply dropping from $74 billion to $65 billion. Based on CoinMarketCap data, the coin has been trading below $1 for the past ten days. As of this writing, USDT is exchanging hands at $0.99.
UST’s crash has brought scrutiny and instability to stablecoins. Bitfinex, the organization responsible for maintaining USDT reserves, has been asked to shed more light on the token’s reserves.
A significant percentage of USDT’s reserves constitute commercial banknotes. However, the firm has refused to disclose the kind of notes in its reserves. As of this writing, Bitfinex hasn’t conducted a comprehensive audit of its reserves.
When asked about USDT’s reserves, Bitfinex CTO Paolo Ardoino said it had minted over $7 billion worth of the stablecoin in the last 48 hours. The firm said it would continue to mint more USDT to maintain its peg to the dollar.
Despite the assurances of Bitfinex, experts are still skeptical about the coin’s declining reserves amid the increasing redemptions. FTX boss Sam Bankman-Fried said the redeeming USDT only proves the declining reserves.
USDT Has a Solid Track record
The recent market crash isn’t the first in the coin’s history. The crypto crash in 2018 and the 2020 pandemic-induced crash are examples. Both circumstances saw the cryptocurrency market lose the majority of its value. But, USDT remained resilient in these extreme bearish circumstances.
The resilience of the coin could swing traders back to USDT. While USDT’s reserves remain concealed, there appears to be enough to maintain USDT’s value for the time being.
Meanwhile, Terra’s UST and LUNA have soared 200% in the market amid the community’s voting on Kwon’s hard fork proposal. The proposal seeks to remove the UST stablecoin and create a new token – Terra Classic.
The voting result could cause a ripple effect on the broader crypto market as traders eagerly await more spikes.