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The world’s largest stablecoin by market capitalization has fallen slightly from its dollar peg this week. There may be more to the situation than it seems, however.
Tether decoupled from the dollar slightly on May 12 and has been a little volatile since. The world’s largest stablecoin dipped to around $0.95 and is still trading just below $1 at the time of writing.
The volatility is no doubt linked to the collapse of the Terra ecosystem. UST had fallen to around $0.16 and LUNA had crashed to zero on Friday, May 13.
Furthermore, one stock investor made a connection between the USDT instability and China’s embattled Evergrande Group last year.
The fall of #Evergrande and the instability of the #Tether "stablecoin" //thread👇
— Sunshine | 4612.eth (@StonkSandwich) September 14, 2021
The Evergrande Influence?
The Evergrande Group is the second-largest property developer in China by sales. Additionally, it is China’s largest issuer of commercial paper with more than $300 billion in debt, according to reports.
Tether published its first Reserves Breakdown in March 2021. Furthermore, it listed commercial paper as constituting 65% of its cash and cash equivalents. “In other words, 49% of Tether is backed by unsecured IOU’s from undisclosed sources,” the researcher noted.
They added that China’s largest issuer of commercial paper closed its statement to the Hong Kong Stock Exchange last year. With it, there was a warning to investors of uncertainty regarding its ability to successfully ease liquidity issues. This may have an influence on Tether, one of the largest investors in the commercial paper market.
However, at the time, Tether made a statement that it does not hold any commercial paper with the embattled Evergrande Group. In September 2021, the company confirmed:
“Tether does not hold any commercial paper or other debt or securities issued by Evergrande and has never done so.”
It added that the vast majority of the commercial paper held by Tether is in A-2 and above rated issuers.
Therefore, it is highly likely that the current volatility with Tether is related to the broader market slump and the collapse of the Terra ecosystem.
Tether on Track
The company refuted the FUD regarding its peg volatility on Thursday. It confirmed that it continued to honor all redemptions from verified customers during market volatility. Tether added that it was on track to process two billion on May 12.
Tether Continues to Honour All Redemptions from Verified Customers During Market Volatility, On Track To Process 2bn Today https://t.co/p1AugHb9Gn
— Tether (@Tether_to) May 12, 2022
CEO and crypto quant trader at Alameda Research Sam Trabucco said “it has been nice to once again confirm the existence and efficacy of USDT’s redemption mechanism,” before adding “Alameda did a ton of ’em today.”
At the time of writing, Tether’s market capitalization was just under $80 billion.