How Stable Is Tether? Data Shows USDT At Massive Liquidity Imbalance

The Tether stablecoin (USDT) appears to have failed in convincing investors that it is able to handle mass redemptions in the market.

Data from Curve- the largest DeFi stablecoin exchange- shows that its biggest liquidity pool is largely skewed towards USDT. This indicates that traders are swapping the coin in favour of other stablecoins- namely USDC and DAI.

65% of the so called 3pool on Curve consists of USDT- about $650 million of the token. The remaining 35% of the pool is made up by USDC and DAI equally. At the time of writing, USDT is still trading marginally below its dollar peg, and has been for nearly two months. It is also trading at a discount to USDC and DAI.

With crypto markets crashing to their weakest levels since 2020, traders are uncertain over what tokens could implode next.

USDT sales continue despite assurances from Tether

A bulk of the scrutiny towards USDT comes from its de-peg in the wake of the Terra crash. The implosion of the TerraUSD (UST) stablecoin had increased scrutiny towards other tokens.

While USDT has since largely recovered from the de-peg in May, uncertainty over the nature of its reserves has bogged the token ever since. Crypto traders have criticised Tether for not being open over what assets back the stablecoin.

USDT’s total market capitalization has slumped by about $15 billion to $66 billion since May, amid a flurry of redemptions.

This puts the token about $10 billion away from being overtaken by USDC.

The stablecoin’s market value has dropped despite repeated attempts by Tether to reassure investors over the stability of its reserves. A report last week suggested that more short sellers are betting against USDT.

But Tether has a steady history

But despite scrutiny towards USDT, the stablecoin has so far honoured all redemptions, and has done so for over five years. Tether claims to be backing the stablecoin with over $66 billion worth of assets, and has weathered several crypto winters.

Recently, FTX CEO Sam Bankman-Fried said that uncertainty over USDT was unfounded, and that he is confident in the stablecoin.

An implosion of Tether would have disastrous consequences for the crypto market, given that the token is extensively used in facilitating trading.