Tether Crypto Loses Its $1 Peg as Crypto Market Spirals

  • Stablecoin Tether (USDT-USD) has been knocked from its $1 peg
  • USDT is the largest stablecoin project in the world
  • The de-pegging comes amid huge volatility for other stablecoins, as well as the broader crypto market

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Stablecoins are not living up to their name this week, as a second $1-pegged fiat alternative loses its value. Tether is the newest stablecoin to drop from its $1 price, coming just days after TerraUSD’s (UST-USD) sizable plummet. The news shows the rippling effect of an increasingly bearish market.

Tether represents one of the most-used stablecoins in the world. In fact, the project trails only Bitcoin (BTC-USD) and Ethereum (ETH-USD) in market capitalization. Its use cases are numerous, but it is most popularly used as a means of transaction on crypto exchanges, or as a liquidity farming token on DeFi platforms.

Since starting trading in 2015, Tether has seen its share of ups and downs. Indeed, it’s one of the most widely used cryptos in the world. However, it has been involved in its fair share of legal drama. Last year, the state of New York actually banned Tether transactions after the company misled investors about its 1-for-1 backing with the U.S. dollar.

This backing in itself has made for a point of contention between Tether bulls and bears.

Tether developers have claimed since launch that each USDT token is backed 1-for-1 with USD. However, recent news has shown that Tether’s reserves are much more diverse and in some way, concerning. After first reporting the true reserve breakdown of the network, Tether revealed nearly 50% of the reserves consisted of commercial paper, the source of which is unconfirmed. While the network has been taking pains to reduce this commercial paper reserve, the reveal has stirred up distrust in USDT.

Tether Crypto Price Drops From $1 Amid Market Frenzy

One of Tether’s strengths is its reserves, regardless of the store-of-value assets that comprise it. See, most stablecoins need these reserves, because they are what keep the token’s value at $1. Others, like the algorithmic stablecoin TerraUSD, use mathematics to keep supply and demand at equilibrium, ensuring price stability. But as the slippage across both stablecoins today is showing, neither method is foolproof.

The stablecoin fiasco that’s leading to a massive outflow from top projects started on Saturday. TerraUSD prices dropped slightly from their $1 peg then, before a far more drastic drop to 30 cents. The effect is a downward spiral for both UST market cap as well as the sibling coin Terra’s (LUNA-USD) prices. Now, UST continues to trade at 43 cents, and LUNA has lost 99% of its value, dragging prices from $76 to 2 cents.

But while Tether has spoken out again algorithmic stablecoins, its project is also experiencing turbulence. Early this morning, the USDT token lost its $1 peg, dropping down to 97 cents. In the wake of the news, the network has expressed plans to move 1 billion USDT from the Tron (TRX-USD) network to Ethereum and Avalanche (AVAX-USD).

It is worth noting that USDT prices have recovered slightly to trade just below $1. UST prices, on the other hand, continue to trade near 40 cents.

On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

This news is republished from another source. You can check the original article here

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