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The USDT cryptocurrency experienced several instances of depegging from USD in August, although it wasn't widely discussed, most likely due to the fact that it was only a minor depeg and didn't hold significant implications. However, a crypto analyst has delved into this matter extensively, providing insights into what the crypto industry should anticipate from USDT in the near future.
USDT stands as one of the most controversial stablecoin list as it has faced many issues that raised eyebrows in the past. If it is not about depegging, there will be issues regarding its reserves backing. In the current situation, the issue is more of the former than the latter.
Let's start our main conversation with an explanation of what stablecoins are. Stablecoins are cryptocurrencies that serve as an alternative to USD dollar, Pounds, Euro and many other top cryptocurrencies. The main objective of stablecoins is to maintain a peg between fiat and their value. You can check our list of the top best stablecoins in 2023 here.
In other words, they try to make their value to be 1:1 with the US dollar or any other currency it is pegged with. However, due to the extreme volatility of the crypto market, there are times when these stablecoins depeg from their 1:1 value with a fiat currency. So, it is this issue a new research from Kaiko is trying to point out.
USDT has been depegging all month. Why hasn't anyone noticed?
— Kaiko (@KaikoData) August 31, 2023
In this week's Deep Dive we propose a novel method of rating stablecoin depegs, check it out below ⬇️https://t.co/o8LuiTMSqW
Apparently, the data shows the USDT is becoming more unstable as the days go by. Compared to other stablecoins such as the TUSD or the USDC, the depegging of these tokens isn't as much as the USDT.
Crypto Analyst Speak on USDT Instability
Kaiko analyst Riyad Carey was the one who spoke about the issues the USDT is facing with regard to maintaining stability. According to this analyst, the USDT has a serious problem with peg stability despite having an eventful quarter 1 in 2023. He suspects that this is due to the stablecoin's total trading volume.
"USDT has a peg stability problem. Its redemption fee and minimum means it’s often rational for USDT holders to sell the token on the market rather than redeem it for USD with Tether. As liquidity has dwindled, the market is no longer able to absorb significant USDT selling," Carey said.
Like everyone else, Carey Admits that the depegs the USDT faced recently are minor ones. Nevertheless, he believes that if it continues this way, it might lead to serious problems in the future.
While speaking to Decrypt, he said, "The redemption fee is a USDT-specific problem. USDC does not have such a fee; stablecoin issuers currently make most of their money from the yield they earn on the USD deposits that they hold. Given the U.S.'s high rate environment, I see no reason why USDT keeps its redemption fee intact unless it is actually intended to reduce redemptions. If that's the case, it's short-sighted because it makes USDT's peg worse."
There are other things Carey sees as problems with the USDT. Tether charges a 0.1% fee for fiat withdrawals over $1,000. Furthermore, they make users pay a non-refundable amount of $150 for "verification." According to Carey, these are some of the factors contributing to the slight instability USDT keeps facing.
"The obvious solution is for Tether to remove its redemption fee and minimum. Tether reported an $850mn profit in Q2; removing the fee would not have a significant effect on profits unless the company believes that making redemptions cheaper would significantly decrease USDT’s supply," Carey added.