The cryptocurrency sector is facing an institutional crisis as trust in stable coins is collapsing. And if few people paid attention to the fall of small projects, then the collapse of UST (Terra), the third largest by capitalization, caused a real stir. UST’s capitalization collapsed from $18.7 billion to $1.4 billion, and the LUNA balancer coin depreciated (more in previous articles).
Stable coins are a link between fiat and cryptocurrencies, facilitating the exchange and evaluation of exchange rates. Their influence is difficult to overestimate, since the vast majority of cryptocurrency exchanges use stablecoins as the base currency for quoting other instruments.
After the fall of UST, the pressure of sellers saving their savings, the stablecoin DEI of the DEUS Finance project could not stand. DEI, as well as UST, is an algorithmic stable coin.
If the USDD of the Tron network had started earlier and had managed to collect a sufficient amount of investment, it would have become the next in line for retirement. USDD is built with an eye on UST and uses similar mechanics. To attract investors, Justin Sun offers an annual return for staking of 30%, whereas in UST the indicator was only 20%. Now the capitalization of USDD is only $ 300 million.
The drop in confidence in stablecoins could not but affect Tether, which is the favorite in this asset class. Its capitalization has been steadily declining for the last week, the reduction has reached 9%.
Tether, unlike the above coins, is a centralized stablecoin, whose stability is fueled by the company’s reserves.
It would be possible to breathe a sigh of relief if the company adhered to its original promises: to hold a reserve in USD in bank accounts equal to the volume of USDT issuance.
Under pressure from NYAG (New York State Attorney General’s Office), Tether conducted an audit that revealed the composition of reserves: fiat USDT is secured by less than 5%, and more than half of the volume is occupied by commercial securities.
In other words, by releasing Tether, the company invests in other cryptocurrency projects, among other things. It is possible that some of the funds were invested in Terra. This probability sharply devalues USDT and threatens liquidity risk in the leading stablecoin with a capitalization of $76 billion. It is also discouraging that Tether has repeatedly asked regulators to cancel the obligation to publicly disclose the state of reserves.
The quality of commercial securities in the Tether reserve cannot be judged, since their composition is hidden from the public. Investors’ concerns explain the outflow of funds from USDT to USDC – over the past week, its capitalization has grown from $48 billion to $ 52 billion.
USDC has a greater investment attractiveness, as the parent company of Circle is registered in the USA, and the accounting statements on the state of reserves are published by an independent firm Grant Thornton LLP on a monthly basis. On May 13, Circle CFO Jeremy Fox-Jean confirmed that the USDC is backed by 23% directly by fiat and 77% by short-term US Treasury bonds.