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June 16 (Reuters) – Major cryptocurrency volatility has hit stablecoins, typically considered the market’s safer-havens, with investors pulling money out of the sector and several losing the peg to their underlying assets.
According to CoinGecko data, the market capitalization of stablecoins fell to $156.8 billion on Thursday, down from roughly $181 billion at the start of May.
Tether, the world’s most popular stablecoin, fell to $0.993 on Wednesday before swiftly regaining parity with the dollar.
In a letter, crypto digital asset management IDEG noted, “Stablecoin market cap goes hand in hand with sentiment and liquidity in crypto markets, and it’s slightly alarming that USDT appears to be seeing another round of liquidations.”
The digital asset markets are suffering after crypto lender Celsius suspended withdrawals and transfers between accounts on the heels of the terraUSD stablecoin’s implosion last month, as well as global monetary tightening making riskier assets like cryptocurrencies less appealing.
Stablecoins are crypto tokens that are tied to the value of traditional assets like the dollar, and because of their decreased volatility, they are the preferred method of transferring funds between digital tokens or into cash.
They’re also a target for funds that arbitrage between exchanges and locations in the hopes of betting on stablecoins that are barely below par regaining parity.
Tether’s market valuation has dropped more than $5 billion in the last 30 days due to concerns about its reserves-backed Tether’s exposure to Celsius, as well as continued concerns regarding its reserve assets.
“They (Tether) are likely to have some bad loans because of Celsius,” Joseph Edwards, head of financial strategy at crypto business Solrise Group, stated.
“Tether’s market worth is still over $70 billion,” he noted, “and these things are a drop in the ocean.”
Tether, for its turn, said that any loans to Celsius were overcollateralized and that “false rumors” were fueling concerns about the composition of its commercial paper reserves.
ALGORITHMIC STABLECOINS ALSO HIT
A number of algorithmic stablecoins have also been impacted, including terraUSD, which uses complicated processes to restrict token issuance and keep its peg to the underlying value.
According to researcher CryptoCompare, USDD, the algorithmic stablecoin of smart contract platform Tron and the ninth-largest stablecoin by market cap, lost its peg to the dollar on Monday, plummeting as low as $0.96 as short-sellers built up severe bets against the cryptocurrency.
Justin Sun, the founder of Tron, has pledged to spend more than $2 billion to defend the stablecoin’s peg.
“They won’t last even 24 hours, in my opinion. There will be a short squeeze “On Monday, he tweeted. Sun did not respond to a request for comment right away.
The Tron DAO, which administers the stablecoin’s reserves, announced on Wednesday that 2.5 billion of its tron tokens would be removed from the Binance crypto exchange to assist support the USD. USDD, on the other hand, has yet to reclaim its peg and is currently trading at $0.976.
Other algorithmic stablecoins, such as the Frax stablecoin, which has since rebounded, and the Neutrino USD, which fell as low as $0.93 on Wednesday and is now trading below the dollar at $0.966, have also been de-pegged in recent weeks.
Even so, these stablecoins are a fraction of the size of Tether or even terraUSD at its peak.
“There are depegs in algoriththmic stablecoins again,” Edwards added, “but they keep happening over and over… if something bad happened to them, it wouldn’t constitute any split for the ecosystem as Tether did.”
USD Coin, which is backed by cash and U.S. Treasury notes and has seen its market worth steadily rise to more over $54 billion from $52 billion over the previous month even while other stablecoins suffered, is one potential winner of the present turbulence.
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