Crypto volatility knocks more stablecoins off their peg


The smartphone with the Tether logo is placed in the US dollars shown in this illustration taken on May 12, 2022. REUTERS / Dado Ruvic / Illustration / File Photo

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June 16 (Reuters) – The high volatility of cryptocurrencies has hit stable currencies, usually considered the safest havens on the market, with investors withdrawing money from the sector and several losing the link to their underlying assets.

CoinGecko data showed that the market capitalization of stable currencies plummeted to $ 156.8 billion on Thursday from about $ 181 billion in early May.

Tether, the world’s largest stable currency, fell briefly to $ 0.993 on Wednesday, although it quickly regained parity with the dollar.

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“Stablecoin’s market cap is tied to sentiment and liquidity in the crypto markets, and it’s a bit worrying that USDT seems to see another round of settlements,” cryptographic digital asset manager IDEG wrote in a note.

Digital asset markets are facing a perfect storm, faltering after crypto lender Celsius froze withdrawals and transfers between accounts following last month’s disappearance of stablecoin terraUSD, as well as the global tightening of monetary conditions making the assets riskier. like cryptocurrencies, be less attractive.

Stablecoins are cryptocurrencies linked to the value of major assets such as the dollar, and are the primary means of moving funds through digital tokens or cash due to their lower volatility.

They are also the target of funds that trade between exchanges and geographies, and try to bet on stablecoins that are quoted slightly below par to regain their parity.

Concerns about Tether’s exposure to Celsius, backed by reserves, as well as ongoing concerns about its reserve assets, have caused it to lose more than $ 5 billion in market capitalization over the past 30 days.

“There is some recognition that (Tether) will have some bad loans because of Celsius,” said Joseph Edwards, chief financial officer of cryptocurrency firm Solrise Group.

However, “Tether’s market capitalization is still above $ 70 billion and these things are like a drop in the ocean,” he added.

For his part, Tether said any loan to Celsius was over-collateralised and that concerns about the composition of its commercial paper reserves were being fueled by “false rumors.”

ALGORITHIC STABLE CURRENCIES ALSO REACH

A series of algorithmically stable currencies, which, like terraUSD, use complex mechanisms to control the supply of tokens and maintain their link with the underlying asset.

USDD, the algorithmic stable currency of the smart trading platform Tron and the ninth stable currency by market capitalization, lost its bond to the dollar on Monday, at a time when it fell to $ 0.96 when short sellers accumulated extreme positions against the cryptocurrency , according to researcher CryptoCompare.

Tron founder Justin Sun has pledged more than $ 2 billion to defend the stable currency.

“I don’t think they can last even 24 hours. It’s getting a little tight,” he tweeted Monday. Sun did not immediately respond to a request for comment.

Tron DAO, which manages reserves for stable currency, said Wednesday it would remove 2.5 billion of its tron ​​tokens from the Binance cryptocurrency exchange to help strengthen the USDD. However, the USDD has yet to regain its fixation and is trading at $ 0.976.

Other algorithmically stable currencies have also faced decoupling in recent weeks, including the Frax stable currency, which has since recovered, and the Neutrino USD, which fell to $ 0.93 on Wednesday and is still trading below the dollar at $ 0.966.

Still, these stable currencies are much smaller than Tether, or even terraUSD at their peak.

“There are depegs in algorithmically stable currencies again, but those keep happening over and over again … if something bad happened to them it wouldn’t represent any fracture to the ecosystem as Tether would,” Edwards said.

One of the possible winners of the current turmoil is the USD, backed by cash reserves and U.S. Treasury notes, which has seen a steady increase in its market capitalization to more than $ 54 billion from $ 52 billion during the last month, though other stable currencies struggled.

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Report by Medha Singh and Lisa Pauline Mattackal in Bangalore; Edited by Vidya Ranganathan and Alex Richardson

Our standards: the trustworthy principles of Thomson Reuters.



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