First, the value of the UST cryptocurrency collapsed by 80%, the next day the quotes of the largest stablecoin USDT fell. Experts explained why this is connected and how it can affect the market as a whole
On the afternoon of May 12, the USDT stablecoin rate fell by 5%, dropping to $0.95 at the moment. It then partially recovered, rising to current levels of around $0.98, according to Coinmarketcap.
Tether CTO Paolo Ardoino wrote that on the official website of the company, you can always exchange 1 USDT for 1 US dollar. Ardoino claims that over the past 24 hours, Tether has easily exchanged the altcoin for $300 million.
GM
Reminder that tether is honouring USDt redemptions at 1$ via https://t.co/fB12xESSvB .
>300M redeemed in last 24h without a sweat drop.— Paolo Ardoino (@paoloardoino) May 12, 2022
Also, a few days ago, another major stablecoin, UST, started having problems. Its quotes on May 11 fell to $0.2, and at the moment they are $0.5. As a result, the altcoin Terra (LUNA) collapsed by 95% as it is used to stabilize the price of UST.
“The situation is unhealthy”
Since the collapse of the LUNA Terra token and its stablecoin UST, increased volatility has been observed across all stablecoins. The situation has attracted the attention of US regulators. The US Securities and Exchange Commission (SEC) is already investigating the decoupling of UST from the dollar. Treasury Secretary Janet Yellen mentioned the TerraUSD (UST) algorithmic stablecoin incident at a Senate Banking Committee hearing and called for stablecoin regulation by the end of 2022. The collapse of all cryptocurrencies against the backdrop of a fall in futures for US stock indices adds to the negative effect on the market.
“Other stablecoins will go under the knife”
Stablecoins are used in the crypto market as a digital analogue of the US dollar, with the help of which traders and investors fix profits and losses, where they go after the sale of risky assets. Without stablecoins, the crypto market is not as liquid.
The situation with UST and Luna greatly undermines the ability of investors and traders to quickly enter or exit positions. Many stablecoins have been used in DeFi protocols. The collapse of UST generally undermines the credibility of algorithmic stablecoins backed by digital assets.
The volatility in the stablecoin market, which in itself is an oxymoron – stablecoins are called that because they are stable, stable. As practice has shown, it was only a name. Today the rate of the main USDT was falling.
Investors rushed to transfer assets from USDT to USDC (at least this coin has a clear reserve structure). What happened to the crypto market was what many expected a couple of years ago amid the Tether\USDT scandals. Even then they said that in the event of the collapse of this stablecoin, the entire crypto market would be flooded with “blood”.
In the near future, I expect the effect of the collapse of UST to increase, while the Luna project itself may well survive and partially recover. First of all, other stablecoins, whose reserve structure is similar to UST, will go under the knife.
I expect USDC to strengthen its position. Perhaps he will overtake USDT and become the leader. And this will be another niche in which US regulated companies will become leaders after global turmoil (after the ban on mining in China, it was the US that became the leader in hash rate).
The situation with UST will not remain without the attention of American regulators. Until the end of the year, we can expect the emergence of regulations for stablecoins in the United States.
Bitcoin will recover from the blow, as has happened more than once, but in the coming weeks, market participants are in for a roller coaster. If we talk about long-term planning, then now is a good time to enter bitcoin – there may not be such sales anymore. If we talk about the short-term forecast, then Bitcoin may sink another couple of thousand down, but the $20 thousand bar will not be overcome by a wall of buy orders.
“Stablecoins are a marker of the entire market”
Trust in stablecoins is being lost, as the market has been warned about many times. Stablecoins are not pegged to the dollar, and as a result, volatility in such a complex market is unavoidable.
Now there is a decrease in the entire crypto market due to a number of macro and microeconomic events. With such a volume of liquidations, stablecoins are not kept afloat. But confidence remains in USDT and BUSD, which cannot be said about UST. Stablecoins are a marker of the entire market, and now you need to be extremely careful and careful.
“No risk of USDT collapse”
Stablecoins are one of the most risky elements of the DFA market. There are many factors that point to the lack of transparency of Tether, Circle and other projects. There are also many factors that indicate that the rise in prices in the DFA market is directly related to the aggressive issuance of stablecoins. Therefore, any problems with this sector of digital assets have an impact on prices in the crypto market.
I would not attach too much importance to the UST situation from the Terra project. The fact of a possible “scam” does not speak of the problems of the market as a whole: there are simply problems of one particular project, which received excessive media attention against the backdrop of significant purchases of BTC to ensure liquidity. The failure of Terra will not lead to the collapse of the CFA market, these are completely incommensurable things, there have already been many similar bank run and exit scams, and the market continues to be stable.
Also, I do not think that it is worth paying attention to the local decoupling from the rate of 1 USD in other stablecoins, for example, in USDT. These are fairly common events that occur against a background of high volatility, as these days, and I do not yet see the risks that will lead to the collapse of the main stablecoin of the USDT market. Its underlying assets are less volatile and USDT has purely external risks, such as regulation or a full audit, rather than the volatility of BTC and other digital assets.
The main thing in the current circumstances is not to store assets in one stablecoin, there is USDC and BUSD, there is DAI, there are many options for storing value besides USDT. It is impossible to exclude the development of problems associated with a drop in the confidence of crypto investors in individual projects, but so far, apart from emotions, there is nothing significant in the market for a major collapse.
