After the collapse of TeraUSD last month, secondary stablecoins were able to slip Tether off its peg.
On May 12, Tether, the largest stablecoin, fell from its $1 peg to $0.95, forcing investors to redeem $10 billion over the following weeks. As a result of this omission, the second and third most used stablecoins were able to gain more users.
According to CoinGecko, USD Coin, the largest stablecoin after Tether, gained $5 billion in market cap, while Binance USD, which became the third-largest stablecoin, was valued at $1.4 billion. Stablecoins have grown in market capitalization to $160 billion, up from around $11 billion in June 2020.
However, Tether still remains the largest stablecoin by a significant margin, with a market cap of $72 billion. On Binance, the world’s largest cryptocurrency exchange, many token and derivative contracts are quoted and collateralized in Tether. Meanwhile, USD Coin has a market capitalization of around $54 billion, while that of Binance USD is $18 billion.
tether black box
The shakeup was caused by the collapse of TeraUSD, previously the third-largest stablecoin. Since then, investors and regulators have become increasingly concerned about the risk of a potential run on Tether. If investors choose to redeem Tether en masse, regulators are concerned that a fire sale of traditional assets held as collateral could destabilize financial markets.
Tether claims that it maintains its reserves equivalent to the US dollar which includes commercial paper, bank deposits, precious metals and government bonds. However, Tether did not disclose the details of its reserve investments, which could potentially contain a number of liquid or leveraged assets.
Based on the lack of knowledge and information about its reserves, Binance founder and CEO Changpeng Zhao stated that he views Tether as a high-risk stablecoin. “It’s a black box for most people, including me,” he said.