- After the collapse of the algorithmic stablecoin TerraUSD, the world’s leading stablecoin Tether, briefly lost its peg on 12 May.
- Friday (13 May) brought some joy and relief to the stablecoin traders as Tether managed to climb out of the hole and secure a rally of 1.77%.
The month of May is turning out to be a never-ending nightmare for the stablecoin market. After the collapse of the algorithmic stablecoin TerraUSD, the world’s leading stablecoin Tether, briefly lost its peg on 12 May, raising fears that it too could face a similar fate. The fall was mainly on the back of the crypto market collapse, which saw almost US$200 billion being wiped off the market in a single day.
Tether’s value is meant to be pegged 1-to-1 to the US Dollar and is primarily considered to be an essential component in such a volatile market. Investors often tend to pivot to stablecoins to retain value, thereby making them a safe haven in comparison to volatile coins.
Friday brought a bit of joy and relief to the stablecoin traders as Tether managed to climb out of the hole and secure a rally of 1.77%. Tether, at the time of writing, was trading at US$0.9981 with a trading volume of $1,12,22,29,58,300.
What’s driving the de-pegging?
Tether’s de-pegging seems to be mainly on the back of the market sentiment, which is at its lowest. On 13 May, the overall market cap of the stablecoin market stood at US$162,306,002,093 with a trading volume of US$139,807,850,125 over a day. The stablecoin market has been down by 4.23% in the past 24 hours.
The de-pegging of stablecoins has been largely due to bearish sentiments prevailing in the market, leading to massive sell-off pressure. Further talks of stablecoin regulations have also created a sense of panic in the market. However, it’s important to realise that unlike Terra, which is pegged at US$1 by trading pairs, Tether is backed by fiat currency.
Tether quick to switch
With the increasing volatility and change of events in the stablecoin market, Tether has stepped up to change its protocol. Tether has announced that it is planning for a chain swap to transfer its USDT assets from TRON to Ethereum and Avalanche blockchain.
Tweeting about the information, Tether said that in the coming days, it would be moving about 1 billion USDT to Ethereum, and another 20 million will be moved to Avalanche. The protocol, however, was quick to point out that during the transfer, the total supply will remain unaffected.
Tether’s brief de-pegging did inset the cat among the pigeons, but its quick revival has put many investors at ease. Besides, the chain swap should also give the protocol more stability and should be able to ward off instances that Terra has been witnessing recently. The market participants need to be wary of growing volatility and, therefore, must do their research and then only invest in risker assets such as cryptos.
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