The latest wave of redemptions of Tether tokens is threatening its dominance of the stablecoin market as the project’s market cap is getting close to that of its rival USDC as confidence in the stability of its reserves appears to be diminishing.
Even though Tether claims that every token in circulation is backed by liquid reserves and that the digital asset can be redeemed at any given point for $1 via its official website, that has not stopped investors from expecting the worse.
According to data from CoinMarketCap, the market capitalization of USDT has declined by $2.5 billion in the past 3 days. Meanwhile, a total of $12 billion worth of USDT tokens have been redeemed since the year started as lots of money have flowed out of the crypto ecosystem amid a shift in macroeconomic conditions.
These redemptions have narrowed the gap between USDT and USDC, with the total market cap of the latter now standing only $15.6 billion away from that of its peer.
Why Are Investors Redeeming So Many Tether Tokens?
The collapse of Terra’s algorithmic stablecoin UST, a crisis in the making at one of the largest crypto savings platforms – the Celsius Network – and rumors about the majority of the firm’s liquid reserves being comprised of Chinese and Asian commercial papers.
Tether’s management immediately addressed these rumors in a blog post published yesterday in which it clarified that the allegations were “completely false” and that they were “likely spread to induce further panic in order to generate additional profits from an already stressed market”.
The company emphasized that 47% of its reserves are allocated on US Treasury bonds as per its latest attestation while commercial papers account for less than a quarter of the portfolio. In addition, the management stated that it plans to reduce the commercial paper allocation to zero once the instruments expire with the proceeds “being rolled into US Treasuries with short maturities”.
Tether also clarified that its position on Celsius was fully liquidated without the incident causing any losses for the company. In addition, the company reported that it has no exposure to the protocol at the moment except from “a small investment made out of Tether equity in the company”.
The meltdown of USDT has always been feared by both crypto enthusiasts and detractors of the ecosystem. Tether Holdings Limited, the company in charge of overseeing the stability of the token, publishes quarterly reports of its reserves as part of a settlement reached with the New York Attorney General’s Office concerning the protocol’s transparency.
Can USDC Ultimately Flip USDT’s Dominance?
USDC is a stablecoin issued and overseen by CENTRE, an organization that was founded by Circle and Coinbase (COIN) that aims to create a decentralized payments ecosystem. The project was launched in 2018 and, since then, it has progressively become of the most important dollar-pegged tokens in the crypto ecosystem.
Circle is a digital payments company founded in 2013 that also owns the decentralized exchange Poloniex.
Same as USDT, the USDC coin is backed by liquid reserves and it can be redeemed for US dollars at any given point via the project’s official website.
Different from Tether, USDC’s reserves are audited by a firm in the United States called Grant Thornton LLP – the sixth largest accounting services firm in the world.
Circle Internet Financial – the official name of the company behind USDC – issues a monthly report audited by this firm every month in which it discloses the status of its reserves.
The latest report issued on April 30 disclosed that there were 49.26 billion USDC tokens in circulation and that the total fair value of the US-dollar denominated assets held by Circle Internet Financial was “at least equal” to USDC’s circulating supply.
According to the report, the assets held by Circle to back USDC were primarily cash and short-dated US government obligations. Details about the institutions that Circle uses to store its reserves or the amount that it has allocated to each are not disclosed in the report.
The main difference with USDT is that Circle is a US-based organization that is subject to the country’s strict regulations. In contrast, Tether Holdings Limited is domiciled in both Hong Kong and the British Virgin Islands, a location considered a tax haven and one that has less credibility in terms of regulatory oversight.
Tether’s attestations are, however, certified by MHA Cayman, an accounting firm affiliated with MHA MacIntyre Hudson – a company that is reportedly being investigated by the UK Financial Reporting Council according to an article published by the Financial Times earlier this year.
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