Crypto volatility knocks more stablecoins out of par

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

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June 16 (Reuters) – High volatility in cryptocurrencies has hit stablecoins, normally considered the market’s safest havens, with investors pulling money out of the sector and several losing their link to their underlying assets.

The market capitalization of stablecoins had plunged to $156.8 billion on Thursday, from around $181 billion in early May, data from CoinGecko showed.

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

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“Stablecoin market capitalization goes hand in hand with sentiment and liquidity in the crypto markets, and it is a bit worrying that USDT looks set to see another round of selloffs,” crypto digital asset manager IDEG wrote in a note.

Digital asset markets are facing a perfect storm, reeling after crypto lender Celsius froze withdrawals and transfers between accounts following the demise of stablecoin terraUSD last month, as well as global tightening of monetary conditions that make that riskier assets, such as cryptocurrencies, are less attractive.

Stablecoins are crypto tokens pegged 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 targeted by funds that arbitrage between exchanges and geographies, and try to bet on stablecoins that are trading marginally below parity to get their parity back.

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

“There is some recognition that (Tether) are going to have some bad loans because of Celsius,” said Joseph Edwards, chief financial strategist at crypto firm Solrise Group.

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

For its part, Tether said that any loans to Celsius were over-collateralized and that concerns about the composition of its commercial paper reserves were being fueled by “false rumours”.


Several algorithmic stablecoins, which, like terraUSD, use complex mechanisms to control the supply of tokens and maintain their peg to the underlying asset, have also been affected.

USDD, the algorithmic stablecoin of smart contract platform Tron and the ninth-largest stablecoin by market cap, lost its peg to the dollar on Monday, at one point falling as low as $0.96 as sellers in short they accumulated extreme positions against the cryptocurrency, according to researcher CryptoCompare.

Tron founder Justin Sun has promised to deploy more than $2 billion to defend the stablecoin peg.

“I don’t think they can last 24 hours. A little squeeze is coming,” he tweeted Monday. Sun did not immediately respond to a request for comment.

Tron DAO, which manages the stablecoin’s reserves, said on Wednesday that it would delist 2.5 billion of its tron ​​tokens from cryptocurrency exchange Binance to help boost USDD. However, the USDD has yet to regain its parity and is trading at $0.976.

Other algorithmic stablecoins have also faced decoupling in recent weeks, including the Frax stablecoin, which has since rallied, and the Neutrino USD, which fell as low as $0.93 on Wednesday and is still trading below the dollar to $0.966.

Still, these stablecoins are much smaller than Tether, or even terraUSD at its peak.

“There are depegs in algorithmic stablecoins again, but they keep happening over and over again…if something bad were to happen to them, it wouldn’t pose any fracture to the ecosystem in the way that Tether would have,” Edwards said.

One potential winner from the current turmoil is USD Coin, backed by cash reserves and US Treasury notes, which has seen its market capitalization grow steadily to more than $54 billion from $52 billion at the last month, even as other stablecoins struggled.

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

Our standards: the Thomson Reuters Trust Principles.

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