The newest wave of Tether token redemptions is challenging the project’s domination of the stablecoin market, with the project’s market cap approaching that of its rival USDC as trust in the security of its reserves looks to be dwindling.
Despite Tether’s promises that every token in circulation is backed by liquid reserves and that the digital currency can be redeemed for $1 at any time via its official website, investors are anticipating the worst.
USDT’s market valuation has dropped by $2.5 billion in the last three days, according to CoinMarketCap statistics.
Meanwhile, since the beginning of the year, a total of $12 billion in USDT tokens have been exchanged, as a substantial quantity of funds has moved out of the crypto ecosystem owing to a shift in macroeconomic conditions.
These payouts have reduced the difference between USDT and USDC, with the latter’s total market worth being only $15.6 billion less than that of its counterpart.
What’s The Reason for Redemption?
The downfall of Terra’s algorithmic stablecoin UST, an impending crisis at one of the popular cryptocurrency savings platforms – the Celsius Network – and suspicions that the majority of the firm’s liquid deposits are made up of Chinese and Asian commercial papers.
Tether’s management responded promptly to these reports in a blog post published yesterday, clarifying that the charges were absolutely untrue and were likely propagated to provoke further fear in order to earn further profits from an already pressured market.
According to the company’s most recent attestation, 47% of its reserves are allocated to US Treasury bonds, while commercial papers account for less than a quarter of the portfolio.
Additionally, management stated that it aims to reduce the commercial paper investment to zero when the assets expire, with the profits being invested into short-maturity US Treasuries.
Tether further stated that its position on Celsius was fully liquidated, with no losses incurred by the business as a result of the occurrence. Furthermore, the business stated that it currently has no exposure to the protocol other than a minor investment made out of Tether’s ownership in the company.
Both crypto fans and skeptics of the ecosystem have long dreaded a USDT catastrophe. As part of a deal agreed with the New York Attorney General’s Office on the protocol’s openness, Tether Holdings Limited, the firm in charge of supervising the token’s stability, provides quarterly updates of its reserves.
Can USDC Eventually Dethrone USDT?
USDC is a stablecoin created and managed by CENTRE, a non-profit corporation formed by Circle and Coinbase (COIN) to develop a decentralized payments environment. Since its inception in 2018, the project has grown to become one of the most prominent dollar-pegged tokens in the crypto market.
Circle is a 2013 digital payments firm that also runs the independent exchange Poloniex.
The USDC token, like USDT, is supported by liquid assets and may be exchanged for US dollars at any time via the project’s official website.
Unlike Tether, USDC’s assets are inspected by Grant Thornton LLP in the United States – the world’s sixth-biggest accounting services business.
Every month, Circle Internet Financial, the official name of the corporation behind USDC, produces a monthly report inspected by this firm that exposes the state of its reserves.
According to every recent report, which was issued on April 30, there have been 49.26 billion USDC tokens in existence, and the overall fair value of Circle Internet Financial’s US-dollar-based assets was at least equal to the circulating number of USDC.
Per the research, the assets used to support USDC by Circle were principally cash and short-term US government liabilities. The report does not provide information regarding the institution’s Circle utilizes to keep its resources or the amounts assigned to each other.
The key distinction between Circle and USDT is that Circle is a US-based corporation subject to the country’s stringent rules. Tether Holdings Limited, on the other hand, is based in both Hong Kong and the British Virgin Islands, a tax haven with less credibility in terms of regulatory control.
Tether’s documentation, on the other hand, is verified by an accounting company called MHA Cayman— an affiliation of MHA MacIntyre Hudson which according to a Financial Times article published earlier this year, is a fraudulent company being investigated by the UK Financial Reporting Council.
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