The USDT-dollar peg fluctuates as markets continue to struggle
Due to the LUNA and UST disaster, the BTC-stablecoin trading pairings on worldwide cryptocurrency exchanges are inconsistent.
Following the de-pegging of Terra (LUNA) ecosystem’s stablecoin UST, cryptocurrency markets have continued to suffer large losses, generating differences between stablecoin pegs and the value of Bitcoin (BTC).
On key exchanges, USDT/USD traded below $0.99, a sign of stress for the stablecoin Tether (USDT). To reassure USDT holders that their $1 peg has been maintained, Tether and Bitfinex CTO Paulo Ordoino turned to Twitter.
In light of recent occurrences, Cointelegraph contacted Tether CTO Paolo Ardoino to find out whether USDT’s capacity to keep its $1 peg is in jeopardy. He said that the USDT has never refused to accept withdrawals, even in the face of repeated black swan occurrences in a turbulent market.
As predicted, Tether continues to process withdrawals as usual, despite the expected market panic after yesterday’s market turmoil.” Despite this, Tether has and will continue to allow all of its clients to redeem their tokens, as has always been the case.”
With market sentiment eerily reminiscent of the fall of the Bitcoin market in 2018, Ardoino provided some context by pointing out the technical distinctions between USDT and algorithmic stablecoins:
Like other stablecoins, Tether has a portfolio of cash and cash equivalents, including short-term treasury bills, money market funds and corporate debt holdings from A-2 and higher-rated issuers.
Stablecoins and their related platforms’ capacity to redeem token swaps for their $1 peg may have suffered as a result of the current LUNA/UST crisis. Ardoino is certain, despite this, that stablecoins will remain an important part of the cryptocurrency ecosystem. There will always be demand for stablecoins because they provide a means for traders to connect with the bigger crypto ecosystem,” he added. “I don’t think that confidence was ever lost for centralised stablecoin users.”
The price of BTC/USDT was also out of whack compared to other famous stablecoins, with the difference in value ranging from $500-$1000 across multiple exchanges.
When Terra’s LUNA and its algorithmic stablecoin Terra USD collapsed, the markets were shocked. Users may trade one LUNA for one UST, and vice versa, thanks to the simple conversion rate.
Arbitrage trading resulted in a vast quantity of UST burned for $1 worth of Luna, which was then sold at a profit, and the system collapsed when UST went below its $1 peg. When Luna’s value dropped, not only did arbitrage opportunities disappear but the number of Luna in circulation increased as prices proceeded to fall at an even faster rate.
What happened after that is history, with Terra’s top brass currently striving to fix a dire situation. The Bitcoin Fear and Greed index is now sitting in the Extreme Fear area.
Even while stablecoins have long served as an anchor for cryptocurrency markets, the turbulent year 2022 and its LUNA/UST fiasco have sent shockwaves across the industry.