A few days after the collapse of Luna and UST, Tether, the largest stablecoin by market cap, started to go down in total supply. The stablecoin reports its total supply every day, and you can see its market cap chart on Coinmarketcap looking like stairs. Lately, they haven’t updated this chart as Tether loses an $8 billion market cap in 5 days. It’s possible that there haven’t been any changes in market cap, but again it’s unlikely.
Is this the beginning of another stablecoin collapse?
After Tether’s market cap went down for 5 days in a row, it stayed the same for 3 days and fell again yesterday. With this, it has lost $9 billion in market cap. We can now assume that the UST fiasco has had a deep impact on investors, and they are also dumping USDT. Many could be withdrawing their USDT, and Tether could also be buying back some of its supply to reduce the market cap.
A word of caution with Tether
The US Dollar backs tether, but there is no proper information on its reserves. This is the primary reason for the controversy surrounding the industry’s largest stablecoin. As an investor, you need to be aware that investing in USDT and earning fixed returns doesn’t mean 100% safety in case of a depeg event. The small info shared by them shows only 2.9% cash backing the stablecoin. What are the other assets backing its value? No one knows.
There have also been allegations that stablecoin has been used to manipulate the price of Bitcoin. This is because the team of Tether can increase or decrease USDT’s supply as they please. So, if tomorrow they issue $1 billion tokens, it can be used to buy BTC and push its price. However, it will become price manipulation if they mint tokens without any proper reserves. All in all, they can buy BTC, or any other crypto for that matter, out of thin air.
Most investors talk about DAI as being the safest stablecoin. While others claim a 1:1 backing, DAI is safer with a 1:2 backing. It means for every 1 DAI; they back it with $2.
What are your thoughts as Tether loses an $8 billion market cap in 5 days? And do you think something shady is going on? Let us know in the comments below. Also, if you found our content informative, do like and share it with your friends.
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