By Frances Yue
Investors have withdrawn over $10 billion worth of Tether in the past two weeks, over heightened concern and regulatory scrutiny around the stablecoin.
Tether /zigman2/quotes/226258617/realtime USDTUSD -0.01% , the largest stablecoin by market capitalization, has seen its circulating supply decline to around $73 billion on Monday from $83 billion on May 10, according to data from CoinGecko. Stablecoin is a type of cryptocurrency pegged to other assets, often fiat currencies such as the U.S. dollar.
By contrast, USD Coin /zigman2/quotes/226472410/realtime USDCUSD 0.00% and Binance USD, the second and third largest stablecoins, saw their market capitalization increase by $5 billion and $1.5 billion, respectively, over the same period, according CoinGecko data.
Meanwhile, Tether, which is supposed to always maintain a one-to-one peg against the U.S. dollar, dropped to as low as 96 cents on May 12. Though it soon recovered to close to $1, the crypto has been trading at a slight discount on multiple crypto exchanges such as Binance, Coinbase and Kraken.
“Tether’s redemption mechanism is reserved for verified users and only executed above a $100k threshold, which leaves market sell orders as the easiest route for smaller traders to cash out, adding to the selling pressure throughout the week,” analysts at Kaiko Research wrote in a Monday note.
“Recent disruptions in the market are making participants more inclined to be thinking about transparency and regulation,” Joel Kruger, strategist at LMAX Group, wrote to MarketWatch in emailed comments.
Different from algorithmic stablecoin USDTerra, which collapsed earlier this month , Tether is backed by a reserve of assets. However, critics have long expressed concerns over the composition of its reserve, as 25% of the assets, or $20.1 billion, was in commercial paper and certificates of deposit, which are considered less liquid than cash, as of March 31.
“Tether’s ability to redeem $10 billion is a real-time demonstration of its strength, and the confidence the larger crypto ecosystem has in USDT,” the company said in a statement Monday.
A company spokesperson earlier wrote to MarketWatch that its “commercial paper holdings have gone down significantly as a percentage of our reserves” in recent quarters. The company held about $30.8 billion, or 49% of its assets in commercial paper and certificates of deposit as of June 30, 2021, according to a previous attestation report.
Regulators have been paying increased attention to stablecoins, as Treasury Secretary Janet Yellen urged Congress to quickly pass a new regulatory framework .