Tether investors have redeemed $10 billion worth of the token since the crypto rout rattled faith in stablecoins

·3 min read
Tether cryptocurrency
Tether dropped to well below $1 as crypto markets showed signs of stress.Justin Tallis/Getty Images
  • Tether investors have pulled $10 billion from the stablecoin since the crypto market crashed earlier in May.

  • About $1 billion worth of tokens were redeemed Saturday, and another $1.5 billion three days earlier, per the Guardian.

  • The withdrawals signal hesitancy about tether's future, as worries about the strength of stablecoins persists.

Tether has paid out $10 billion in withdrawals to investors since the cryptocurrency market crashed earlier in May, leading the stablecoin to lose hold of its dollar peg.

Of that, $1 billion of tether was redeemed at the weekend, and $1.5 billion three days before that, according to an analysis of blockchain data reported by the Guardian.

The withdrawals signal hesitancy among investors about tether's future, even though the stablecoin has regained its dollar peg and its issuer has vowed to keep paying out big redemptions. The collapse of TerraUSD (UST) earlier this month has cast doubt on the robustness of stablecoins and their worth as a less-volatile store of value in the crypto market.

Tether, the third-largest cryptocurrency with a market capitalization of $73 billion, is designed to easily redeemed one-to-one to the US dollar. Its issuer maintains the peg by backing each of the coins with US dollars in bank accounts and other stable assets.

But the token broke its peg and fell to $0.95 on May 12, as crypto markets plummeted on the back of the crash in UST and luna token in a "death spiral". Tether has since recovered from the drop, its largest since March 2021, and was trading slightly below the $1 mark Monday, according to CoinMarketCap data.

Tether's reserves, and its ability to redeem the token as promised, have come under scrutiny after a series of audits showed the stablecoin wasn't fully backed by US dollars as the issuer initially claimed. Investors have long questioned what reserves Tether has to back up its dollar peg.

Earlier in May, after tether's supply in circulation slipped to $7 billion, Tether's chief technology officer argued the redemptions were a sign of strength in the stablecoin.

"We have redeemed 7B in 48h, without the blink of an eye. How many institutions can do the same?" Paolo Ardoino, Tether's chief technology officer, said on Twitter. "We can keep going if the market wants, we have all the
liquidity to handle big redemptions and pay 1:1. Yes, Tether is fully backed."

In its latest audited accounts, published Thursday, the stablecoin's issuer said it now holds $286 million in short-term non-US government debt as part of its reserves, and it has cut its holdings of commercial paper — a form of short-term unsecured corporate debt — in favor of Treasuries.

Tether has reduced its commercial paper holdings by around $4 billion since its last attestation in February. It now has $20 billion of its cash in commercial paper, $7 billion in money market funds, and almost $40 billion in US Treasury bills in its reserves, per the Guardian.

A collapse in Tether would be catastrophic for the wider crypto market, and could push investors to liquidate other positions, according to GlobalBlock analyst Marcus Sotiriou and other analysts.

"If redemptions continue at this pace and Tether can't meet them, we could see a nuclear winter in crypto," FXEmpire analyst AG Thorson has said.

Tether did not immediately respond to Insider's request for comment.

Read more: Retail traders are getting burned and even big players are taking a hit from tether's limited depeg, according to a crypto prop shop co-founder. Here's the 2 catalysts that could revive retail interest — and a safe haven to turn to

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