Crypto Volatility Knocks More Stablecoins off Their Peg

According to CoinGecko statistics, the market value of stablecoins fell to $156.8 billion on Thursday, down from roughly $181 billion at the start of May.

On Wednesday, Tether, the world's biggest stablecoin, fell to $0.993, but rapidly restored parity with the dollar.

In a letter, crypto digital asset management IDEG noted, "Stablecoin market cap goes hand in hand with sentiment and liquidity in crypto markets, and it's somewhat alarming that USDT looks to be seeing another wave of liquidations."

The digital asset markets are suffering after crypto lender Celsius suspended withdrawals and transfers between accounts on the wake of the terraUSD stablecoin's implosion last month, as well as global monetary tightening making riskier assets like cryptocurrencies less appealing.

Stablecoins are crypto tokens that are tied to the value of traditional assets like the dollar, and because of their decreased volatility, they are the preferred method of transferring money between digital tokens or into cash.

They're also a target for funds that arbitrage between exchanges and locations in the hopes of betting on stablecoins that are barely below par recovering parity.

Tether's market valuation has dropped more than $5 billion in the last 30 days due to worries about its reserves-backed Tether's exposure to Celsius, as well as continued concerns regarding its reserve assets.

"They (Tether) are likely to have some bad loans because of Celsius," Joseph Edwards, head of financial strategy at crypto business Solrise Group, stated.

"Tether's market worth is still over $70 billion," he noted, "and these things are a drop in the ocean."

Tether, for its turn, said that any loans to Celsius were overcollateralized and that "false rumors" were fueling concerns about the composition of its commercial paper reserves.

Stablecoins based on algorithms have also become popular.

A number of algorithmic stablecoins have also been impacted, including terraUSD, which uses complicated processes to restrict token issuance and keep its peg to the underlying value.

According to researcher CryptoCompare, USDD, the algorithmic stablecoin of smart contract platform Tron and the ninth-largest stablecoin by market size, lost its peg to the dollar on Monday, plummeting as low as $0.96 as short-sellers built up severe bets against the cryptocurrency.

Justin Sun, the inventor of Tron, has pledged to spend more than $2 billion to preserve the stablecoin's peg.

"I don't believe they'll endure even a day." On Monday, he tweeted, "Short squeeze is coming." Sun did not reply to a request for comment right away.

The Tron DAO, which administers the stablecoin's reserves, said on Wednesday that 2.5 billion of its tron tokens will be removed from the Binance crypto market to assist support the USD. USDD, on the other hand, has failed to reclaim its peg and is now trading at $0.976.

Other algorithmic stablecoins, such as the Frax stablecoin, which has since rebounded, and the Neutrino USD, which fell as low as $0.93 on Wednesday and is now trading below the dollar at $0.966, have also been de-pegged in recent weeks.

Even still, these stablecoins are a fraction of the size of Tether or even terraUSD at its height.

"Algorithmic stablecoins are experiencing depegs once again, but this is nothing new... "If anything awful happened to them, it wouldn't cause the ecosystem to split the way Tether did," Edwards said.

USD Coin, which is backed by cash and U.S. Treasury notes and has seen its market worth slowly rise to more over $54 billion from $52 billion over the previous month even while other stablecoins suffered, is one possible beneficiary of the present turbulence.