The total supply of Tether (USDT), the world’s largest stablecoin, tumbled substantially this month as more investors exchanged the token for dollars.
The trend follows one of the worst cryptocurrency crashes in recent times. Concerns about Terra’s UST also caused the USDT to depeg to $0.95, the lowest level in five years.
Since the beginning of the month, the token’s total circulating supply has dropped by nearly $9 billion to $74 billion. This indicates that it is under severe selling pressure due to the current market crisis.
According to Coinmarketcap.com, USDT has also spent nearly ten days trading below its $1 peg. It is presently trading at $0.9989.
Rising questions raised over USDT reserves
With the UST crash putting stablecoins under new scrutiny, calls are rising for Bitfinex, which operates USDT, to reveal more information about the reserves backing the token.
Majority of its reserves are made up of commercial debt notes . However, the organization has refused to divulge the actual debt notes it owns. Bitfinex is also yet to complete a comprehensive audit of its USDT reserves.
Bitfinex Chief Technology Officer Paolo Ardoino recently stated that the firm had comfortably redeemed $7 billion worth of USDT in 48 hours when asked about the firm’s reserves.
The firm also points to its track record of keeping the USDT peg as a major reason it will continue to do so.
But this has created concerns about depleting reserves, particularly in light of rising redemptions.
Think this is backwards, successfully redeeming 7b proves that there *were* reserves to send back.
-FTX CEO Sam Bankman-Fried
Concerns about the reserves have moved traders to other stablecoins like BinanceUSD and Circle.
Tether has a proven track record
The market crash in May is not the first for stablecoin. Since its inception, USDT has weathered various harsh market conditions, including a massive crypto rout in 2018 and the COVID-induced crisis in 2020.
In both cases, the majority of the crypto market value was wiped off. But USDT was able to persevere.
While Bitfinex has kept USDT holdings close to its chest. They look to be sufficient to support the stablecoin for the time being.