UST Crisis Sets Off A Chain Reaction? Tether Slips Below Dollar Peg

    • Earlier today, Tether (USDT) fell as much as 6% from its dollar peg.
    • Algorithmic stablecoins like USDN and FRAX also face the danger of de-pegging.

    Earlier today, Tether (USDT), the largest stablecoin in the crypto market lost its peg to the dollar after it fell as low as $0.94, the lowest price in the last two years. This move came as a result of the nervousness in the market after another stablecoin UST lost its peg yesterday and fell to $0.23.

    At the time of writing, USDT had recovered from its lows and was trading at $0.98 on Coinbase, still below its dollar peg. However, it is very improbable that USDT will lose its peg similar to UST. This is because, unlike UST which relies on an algorithm to maintain its peg, USDT is backed by a pool of invested assets. 

    Amid the ongoing fear in the market, Tether’s CTO Paolo Ardoino recently tweeted about how USDT will obey the $1 redemption as promised and that USDT holders don’t need to worry about de-pegging. This is positive for the investors because the inability to redeem UST for $1 was one of the major reasons for UST’s downfall yesterday.

    Since USDT was trading for less than $1 on exchanges like Coinbase and Kraken, market participants were taking advantage of this arbitrage by buying on these exchanges and selling it on other exchanges where the token was trading at a higher price.

    While USDT doesn’t seem to be facing a major problem right now, algorithmic stablecoins are taking a major dip after UST’s de-pegging. As we can see in the chart below from Delphi Digital, small-cap algorithmic stablecoins like USDN, FRAX, FEI, and USDD are now facing the danger of de-pegging.

    Source: Delphi Digital

    Looking at the data, we can say that UST’s de-pegging has set off a chain reaction in the stablecoin industry. Even though USDT will probably survive this without losing its peg, several algorithmic stablecoins will face a tough time in the coming days.

    Divyam Rakesh
    Divyam analyses market trends based on on-chain data, social data, fundamental and macro factors. He also focuses on emerging trends in the industry.

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