Analyzing how USDT fared during its most turbulent week in a while

• On a week-to-date basis, USDT’s market valuation recorded a paltry drop of 0.004.
• Curve’s 3Pool remained imbalanced at the time of writing.

Tether [USDT] endured substantial negative commentary over the past week with the depegging incident acting as the primary source of FUD.

The week started on a sour note for the popular stablecoin as it witnessed the biggest decline below its ideal $1 value since the collapse of FTX exchange last November, according to Messari. However, the storm gradually withered away and USDT crawled back to its dollar peg by the time the week ended.

At the time of writing, USDT was available at 99.9 cents, per CoinMarketCap.

Source: CoinMarketCap

Rise in USDT redemptions

Due to the depeg, USDT witnessed a significant rise in redemptions. Like deposits in a bank or savings account, most stablecoins can be exchanged instantly for their off-chain counterparts like the USD on a 1:1 basis. This is irrespective of their price in the market.

Redemptions significantly impact the market cap of stablecoins as they involve removing tokens out of circulation. It was noteworthy that, in contrast to earlier depegs, USDT’s market cap didn’t experience a significant decline.

On a week-to-date (WTD) basis, USDT’s market valuation declined from $83.8 billion to $83.4 billion at the time of writing, a paltry 0.004 drop. Contrast this with the events around the FTX debacle, USDT’s market cap depleted by roughly 5.7%.

Hence, the major takeaway from the entire episode was that the world’s largest stablecoin has become far more resilient to market hiccups.

Source: Glassnode

USDT firmly ahead of rivals

A bird’s-eye view of the stablecoin landscape reinforced USDT’s solid fundamentals.

USDT rose dramatically in 2023, widening the distance between itself and other entities in the landscape. Its market cap has jumped 26% on a year-to-date (YTD) basis, giving it a market domination of 66% at the time of writing.

Source: Glassnode

On the contrary, other players like USD Coin [USDC], DAI, and Binance USD [BUSD] have succumbed to the factors at play, losing billions of their market cap since the beginning of 2023.

The depegging incident also evoked a certain degree of confidence in USDT’s reserves. Investors have long been skeptical of the assets underpinning USDT and whether redemptions would be honored in case of a major market shock.

However, the fact that the issuing company Tether processed the requests without much discomfort helped dispel the negative sentiment. According to Tether, assets worth $86.7 billion were backing USDT, more than the stablecoin’s market cap.

The DAI factor

Curve’s 3Pool remained imbalanced at the time of writing, with USDT reserves accounting for nearly 60% of the total supply.

Curve’s 3Pool is a stablecoin liquidity pool consisting of USD Coin [USDC], DAI, and USDT, and is supposed to hold roughly equal balances (33.33%) of all three at any given time. It is regarded as a bellwether for investor sentiment regarding stablecoins.

One factor fueling this asymmetry could be a surge in demand for the DAI stablecoin. In fact, DAI’s supply on Curve’s 3Pool had slipped below 20%.

DAI issuer MakerDAO [MKR] recently hiked DAI savings rate (DSR) to 8%. An enticement to earn higher rewards out of their DAI holdings prompted traders to shun their USDT in favor of the former.

DSR acts as one of the most potent monetary policy levers that MakerDao employs to control the supply and demand of DAI. As highlighted earlier, DAI has taken a big hit in its supply since the depegging fiasco of USDC in March.

Since then, Maker has consistently increased the savings rate to attract traders back towards DAI.

Huobi’s mysterious saga

A more controversial event which created a flutter around USDT sell-offs was connected to the cryptocurrency exchange Huobi [HUOBI]. USDT reserves on the Seychelles-based platform have shrunk nearly 65% since the beginning of August, according to CryptoQuant, sparking insolvency concerns.

Adam Cochran, an on-chain analyst and fierce critic of Tron founder Justin Sun, accused the latter of exploiting users’ USDT funds deposited in Huobi to prop up his DeFi positions.

Source: CryptoQuant

Overall, the week that went by proved to be turbulent for USDT. However, the subsequent resilience shown by the largest stablecoin in the market led many participants to heave a sigh of relief.

As of this writing, Tether maintained its dominant position as the largest tradable crypto asset. Transactions worth more than $15 billion were settled in the last 24 hours, according to CoinMarketCap.