There is a significant development for the USDT stablecoin, which is a major player in the cryptocurrency market. Accordingly, there is a situation revealed by a new study by Kaiko. Accordingly, it experienced a slight deviation from its peg, or price constant, throughout August.
USDT Peg and its challenges in the cryptocurrency world
Cryptocurrencies pegged to certain assets, such as stablecoins, US dollars or British pounds. In other words, they are designed to maintain a constant value. However, during times of extreme market volatility, these stablecoins gain in value relative to the assets they represent. Or they can lose their constants by losing value. Historically, USDT’s divergence from its peg to the US dollar has been linked to many factors, including Tether’s redemption fee, liquidity restrictions, and minimum redeemable amount requirements.
Kaiko analyst Riyad Carey has introduced a new metric called “depeg severity,” which correlates a stablecoin’s total trading volume with its vulnerability to peg deviations. In the crypto world, the depeg threshold decreases as the transaction volume increases. On the other hand, the value lost due to peg deviations increases. Other stablecoins such as TUSD, BUSD, DAI, and USDC have experienced minor depreciation throughout the year. However, the report states that they are less sensitive to deviations from the US dollar. The supplement also suggests that they exhibit greater stability.
USDT’s permanent discount raises concerns
The report states that the most serious depegging event for USDT this year occurred on August 7. Accordingly, he emphasizes that USDT is traded at a 2% discount compared to its $1 stablecoin on many trading platforms. This depreciation follows reports of nearly $500 million in net USDT sales on major crypto exchanges such as Binance, Huobi, and Uniswap.
USDT has been depegging all month. Why hasn't anyone noticed?
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— Kaiko (@KaikoData) August 31, 2023
Carey observes that “the cryptocurrency USDT has a peg stability issue.” The combination of a redemption fee and minimum requirements leads USDT holders to sell the token on the market instead of using it for USD with Tether. As liquidity dwindles, the market is struggling to absorb significant USDT sales. The depreciation events of USDT have not caused significant fluctuations in prices. But consistent discounting raises concerns. On the other hand, if it continues, it has the potential to undermine confidence.
Suggested solutions
In response to these findings, Carey suggests that Tether consider eliminating the redemption fee and minimum requirements. Also, according to Carey, there is a consequence of removing the fee, given Tether’s significant gains. It will probably have a limited impact on profits now. However, this move may positively affect the supply of USDT.
Currently, Tether charges a 0.1% fee on fiat withdrawals over $1,000. It also allows the use of cryptocurrency USDT at $0.99. Accordingly, the minimum fiat withdrawal or deposit amount is $100,000. Also, when we look at cryptokoin.com, users have to pay a non-refundable $150 for account verification.
