Stablecoins Deviating from Peg: A Cause for Concern
Key Points:
- USDT, the leading stablecoin, has been deviating from its peg for much of August.
- Riyad Carey, an analyst at Kaiko, proposed a new measure called “depeg severity” to rate stablecoin depegs.
- USDT has experienced more significant depegging events compared to competitors like TUSD, BUSD, USDC, and DAI.
- Decreasing liquidity and the redemption fee of USDT have contributed to the stability problem.
- Tether’s redemption fee is a unique problem, as most stablecoin issuers do not charge such fees.
The crypto community has recently observed that USDT, the leading stablecoin, has been deviating from its peg for most of August. This deviation has raised concerns among crypto enthusiasts, prompting further investigation into stablecoin depegging. Riyad Carey, an analyst at Kaiko, has proposed a new measure called “depeg severity” to rate the severity of stablecoin depegs. According to Carey, as trading volume increases, the threshold for a depeg event decreases. Additionally, the monetary value affected by these peg deviations rises with growing stablecoin trading volume.
While other stablecoins like TUSD, BUSD, USDC, and DAI have also experienced depegging episodes, they have shown less deviation from the U.S. dollar compared to USDT. The most significant depegging event for USDT this year occurred on August 7, with USDT trading at a 2% lower rate than its $1 peg. This event coincided with a $500 million net sell-off of USDT on major crypto platforms. The decreasing liquidity and the redemption fee imposed by Tether have made significant USDT selling harder for the market to handle.
Carey has identified the redemption fee as a specific issue for USDT. Most stablecoin issuers, like USDC, do not charge such fees and primarily profit from the interest on their USD reserves. Carey suggests that eliminating the redemption fee would not significantly impact Tether’s profits. However, Tether’s decision to retain the fee may further destabilize USDT’s peg. With concerns about USDT’s consistent devaluation, trust in the stablecoin may erode if the situation persists.
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