Tether finally regains its peg

Months after crashed to less than a quarter of its original $1 value, the stablecoin has begun to stabilize.

Tether, the world’s largest stablecoin, has regained its peg to the US dollar and begun to stabilize 68 days after crashing to less than a quarter of its original $1 value at the beginning of May.

For the past 2 months, Tether (USDT) - the most systemically important stablecoin - has traded at a slight discount to the dollar. The discount first emerged on May 12th following the collapse of Terra’s UST stablecoin below its fixed value, which triggered widespread market panic that overflowed to USDT, causing it to dip as low as $.96 on some exchanges.

According to data from Kaiko Research, in the two months since, Tether has consistently traded at a slight discount and averaged $0.999 in June. During this time, USDT’s market cap fell from over $80bn to about $65bn today. On July 19th, USDT finally regained its peg and its market cap has begun to stabilize.

In an article posted on its website, Tether cleared out that the episode occured on May didn’t really reflect a loss of the peg or reserve backing, but instead showed that selling interest on the exchanges exceeded their limited liquidity on the coin. “During periods of intense market volatility USD₮’s price on these exchanges may go below or above $1. This does not mean USD₮ has broken its peg. It only signifies that there is more demand for liquidity than exists on that exchange's order books. Tether has over $70 billion dollars of collateral which it can redeem USD₮ against. No exchange’s order book has anything remotely resembling that amount of liquidity. As such, a few billion dollars of demand to exchange USD₮ for dollars can easily exceed the availability of liquidity on an exchange (causing a change in the price of USD₮ on that exchange)- but will not exceed Tether’s redemption facilities or change the price Tether redeems USD₮ for.”