Stablecoin Tether decouples from its dollar peg

October 15, 2018
Chris Wheal

Tether, the dollar-pegged cryptocurrency, has traders concerned after falling more than 5% on Monday, calling into question the so-called stablecoin’s ties to the domestic US unit.

Tether, backed by the US dollar, appears to be decoupling

It remained unclear on Monday morning why the digital currency – purportedly backed one-for-one by dollar investments – had fallen to 95 US cents on Monday morning.

But rumours of scams – perhaps a traditional “pump and dump” – inevitably hit the trading screens, while others predicted its backers were going under.

Delisting rumours

There was no proof of either explanation but some on social media and blog sites were reporting tether’s suspension on some exchanges – including Binance.

One user on Reddit said: “Amazing. I can’t access Binance and all my funds are in USDT (tether).”

In response, another Reddit user said Binance was delisting tether, but nor was there any source for this assertion and Binance made no statement to that effect.

Tether response

Leonardo Real, Chief Compliance Officer at Tether, sent OpenLedger the following response: “Tether is the leading provider of tokenized fiat currencies and is listed on many exchanges worldwide.

“We would like to reiterate that although markets have shown temporary fluctuations in price, all USDT in circulation are sufficiently backed by US dollars (USD) and that assets have always exceeded liabilities.

“In June 2018, a report from Freeh Sporkin & Sullivan, LLP (FSS), based on a random date balance inspection and a full review of relevant documentation of bank accounts, confirmed that all Tethers in circulation as of that date were indeed fully backed by USD reserves.”

Important asset

What was clear, however, that tether was undergoing a powerful sell off.

Tether’s importance in the crypto market is often overlooked since its market capitalisation is only a fraction of that of bitcoin – and by this metric is only the eighth-largest cryptocurrency. But its link to the dollar makes it the most popular entry point to the cryptocurrency market.

It is the second-most traded digital asset – racking up average 24-hour volumes of around $4.6bn, compared with $5.9bn in bitcoin. Indeed, the tether/bitcoin cross is the most traded cryptocurrency pair.

Tether is by far the biggest stablecoin, accounting for around 98% of the daily trading volume of all its stablecoin rivals.

Price action

While tether has experienced some volatility in recent weeks, it has always returned to its $1 level as the peg was maintained by dollar purchases.

On Sunday, however, tether closed the trading session at 97 cents, and on Monday, it fell as low as 87 cents – according to data – before returning to 95 cents.

As investors shed their tether investments, other cryptocurrencies benefited.

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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