Crypto Weekly: Withstanding the contagion

Does Tether withstand the contagion?

For the past weeks, contagion has spread throughout the crypto market, leading to multiple centralized crypto lenders halting withdrawals, citing liquidity issues. On Friday, crypto lender Voyager joined other crypto lenders like Celsius, CoinFLEX, and Babel Finance in halting withdrawals. It is evident that several lenders are de facto insolvent, however, none have so far publicly stated this. Alongside the crash of the stablecoin TerraUSD in early May, the contagion has fueled fear of additional crypto firms being insolvent. This has led investors to withdraw funds from riskier platforms and projects.

Hereof, investors have been severely worried about the backing of the largest stablecoin Tether. Tether has never been particularly transparent around the funds allegedly backing its stablecoin 1-to-1. Following the crash of TerraUSD, Tether deviated from the dollar to as low as $0.97 on exchanges, because investors feared that Tether would follow in the footsteps of TerraUSD. However, it seemed that market makers and proprietary traders were not that nervous. Instead, they acquired Tether on exchanges at a discount to redeem them directly at Tether for one dollar a piece. Tether had almost recovered its peg a few days later, however, its market capitalization had meantime decreased from around $83bn to $75bn. Since then, its market capitalization has further decreased to its present supply worth around $66bn. Yet, Tether has seemingly experienced zero issues in successfully redeeming $17bn worth of its stablecoin to fiat for the past months.