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USDT renew full parity with the dollar after more than two months

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After more than two months, the stablecoin dollar Tether (USDT) has finally resumed its 100% parity with the dollar. According to CoinMarketCap, USDT has resumed full parity in recent days, worth exactly $1.00.

The USDT price returned to the US$ 1 level on July 20 and remained stable for the last seven days. With this, the stablecoin recorded its first week of parity since the collapse of the TerraUSD (UST) stablecoin in the second week of May.

USDT resumes parity with the dollar.  Source: CoinMarketCap.

USDT resumes parity with the dollar. Source: CoinMarketCap.

UST collapse impacts largest stablecoin

Until the second week of May, UST was the third largest stablecoin in the world, behind USDC and USDT itself. However, its price collapsed from the 12th of May, losing more than 70% in value in the following 15 days.

What happened to UST triggered a general panic in the market, causing investors to dump other stablecoins. As a result, several of them lost their parity with the dollar, including USDT, which lost 8% of its value.

In this regard, the USDT price dropped to levels of $0.92 on some exchanges after the UST crash. The price of the stablecoin rebounded, but remained priced in the $0.98-$0.99 range through June and much of July.

During this period, Tether’s market cap dropped by $16 billion, reaching $65 billion in two months. The drop was due to the increase in USDT redemptions, but even with the suspicions about USDT’s backing, Tether honored all withdrawals.

In other words, USDT passed the market stress test, resisting redemptions in volatile conditions and eventually regaining parity.

“The past couple of months have definitely been a stress test for stablecoins following the collapse of the UST and the sharp contraction in the USDT market cap,” said Clara Medalie, director of research at Kaiko. “Tether has proven its ability to process billions in redemptions despite lingering doubts about the composition of its reserves.”

Tether reiterates USDT’s security backing

Tether Limited has long claimed that the value of its stablecoin is 100% asset-backed to ensure parity with the dollar. However, users say that the company is backed by high-risk securities, especially debts linked to Chinese companies facing difficulties.

In recent months, however, Tether has reduced exposure to this type of investment. In May, the company published an independent audit in which it revealed that it had cut 60% of its exposure to these securities. Therefore, the company’s reserves are constituted as follows:

  • US Treasury bonds: $39.2 billion;
  • bank deposits: US$ 4.1 billion;
  • money market funds: $6.7 billion;
  • secured loans: $3.1 billion.

While USDT has the dollar reserves, UST is a stablecoin backed by algorithms and the LUNC token, whose value is tied to the stablecoin itself. Such a setup leaves this type of stablecoin vulnerable to speculative attacks, which has indeed happened.

A potential loss of confidence in USDT is likely to result in a severe liquidity shock for the cryptocurrency market, according to JPMorgan.

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All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.

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