In the world of cryptocurrencies, Tether (USDT) had a week filled with ups and downs, a period that can be aptly described as USDT’s turbulent week. The week kicked off with a significant dip below its $1 peg, the most considerable since FTX exchange’s collapse last November. This depegging incident sparked a whirlwind of negative comments. However, as the week progressed, USDT clawed its way back to the $1 mark. At the close of the week, USDT was trading at 99.9 cents, according to CoinMarketCap.
The Impact of USDT’s Depreciation
The depegging led to a surge in USDT redemptions. Like withdrawing from a bank, most stablecoins, including USDT, can be instantly swapped for off-chain counterparts such as USD on a 1:1 basis, regardless of their market price. Redemptions play a crucial role in the market cap of stablecoins as they involve removing tokens from circulation. Interestingly, USDT’s market cap did not suffer a significant decline, unlike previous depegging incidents. Instead, it saw a minute drop of 0.004 from $83.8 billion to $83.4 billion week-to-date.
This contrasts with the FTX incident where USDT’s market cap fell by approximately 5.7%. This suggests that USDT has grown more resilient to market disturbances, a notable takeaway from USDT’s turbulent week.
USDT’s Market Dominance
Despite the tumultuous week, USDT remains firmly ahead of its rivals in the stablecoin landscape. In 2023, USDT’s market cap increased dramatically by 26% year-to-date, commanding a market domination of 66%. Meanwhile, other stablecoins like USD Coin (USDC), DAI, and Binance USD (BUSD) have lost billions in market cap since the start of 2023.
The depegging incident also helped boost confidence in USDT’s reserves. Investors have long questioned the assets backing USDT and whether redemptions would be honored during a significant market shock. Tether’s assurance that it has assets worth $86.7 billion backing USDT, more than its market cap, helped dispel these concerns.
Curve’s 3Pool Imbalance and the DAI Factor
Curve’s 3Pool, a stablecoin liquidity pool consisting of USDC, DAI, and USDT, remained imbalanced at the end of USDT’s turbulent week. USDT accounted for nearly 60% of the total supply, despite the pool’s design to maintain an equal balance of all three stablecoins. This imbalance might be due to a surge in demand for DAI, whose supply in Curve’s 3Pool had dropped below 20%.
The DAI issuer, MakerDAO, recently increased the DAI savings rate (DSR) to 8%, enticing traders to switch their USDT holdings for DAI to earn higher rewards. Since USDC’s depegging fiasco in March, DAI’s supply has taken a hit, prompting Maker to consistently raise the savings rate to draw traders back.
Another controversial event that shook USDT was related to the cryptocurrency exchange Huobi. USDT reserves on this platform have dwindled nearly 65% since August, leading to insolvency worries. Despite these concerns, USDT proved resilient, maintaining its dominant position as the largest tradable crypto asset, with transactions exceeding $15 billion in the last 24 hours, according to CoinMarketCap.
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