Cryptocurrency investors and traders have withdrawn $7.7 billion from the stablecoin Tether (USDT), causing its market capitalization to drop 7.8% in the past seven days to $76 billion.
The amount withdrawn from the leading stablecoin is nearly double the $4.1 billion it had in cash reserves at the end of 2021, according to Tether’s latest reserve report from December 2021.
To maintain Tether’s peg to the US dollar, The company behind the token backs USDT with assets such as cash, bonds, and Treasury bills, with the goal that each token is backed by at least $1 of assets.
According to the latest reserves report, the company had total assets of at least $78.6 billion, of which about $4 billion, or 5%, were in cash.
However, the company appears to be able to maintain its cash reserves despite the “bank run” scenario caused by the collapse of the algorithmic stablecoin TerraUSD (UST), which caused investors to flee not only stablecoins, but the entire cryptocurrency market for fear of collapse.
A daily updated transparency report shows that 6.36% of Tether’s assets are currently held in cash, which would equate to about $4.8 billion if Tether’s reserves approach USDT’s market capitalization.
On Thursday, the market panic caused the USDT/USD pair to will trade below $0.99 on major exchangesprompting Tether to issue a statement at the time stating that it would honor all refunds up to $1.
On the same day, Tether CTO Paolo Ardoino said in a chat of Twitter spaces that the majority of the company’s reserves are in US Treasury bonds and that in the last six months it has reduced its exposure to commercial paper.
Tether has received scrutiny for its secrecy regarding its reserve assets and only released its first reserve breakdown in May 2021.. Published reports remain vague as to the exact assets the company invests in.
This obscurity, coupled with the recent short-lived depreciation, has seen some investors rush to swap their Tether for another popular US dollar stablecoin, USD Coin (USDC), because USDC is audited and fully backed by cash and US Treasury bonds.
In a blog post by Circle CFO Jeremy Fox-Geen made in response to the stablecoin crash, it was reaffirmed that USD Coin was fully backed by cash and US Treasury bonds for the 50.6 billion USDC in circulation.
CoinGecko data also shows that investors find a safe haven in USDC. Between May 3 and Tuesday there was a 6.3% jump in the USDC market capitalization, representing $3.1 billion of inflows in that period.
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