Market experts are expressing growing concerns over the recent surge in USDT selling, the leading stablecoin by market capitalization. Tether's USDT, valued at approximately $83.4 billion, is reportedly under pressure due to a flood of sellers in specific liquidity pools on the Uniswap and Curve protocols. While there is no immediate sign of a USDT depeg and the stablecoin is trading close to its intended value of one US dollar, the situation is raising speculation about the potential loss of parity between USDT and its underlying asset.
The current surge in USDT selling has been observed in the Curve 3pool and the Uniswap v3 USDC/USDT pool, both critical components of the decentralized finance (DeFi) ecosystem. The Curve 3pool, holding a combined total of $380 million in USDT, USDC, and DAI, represents the largest USDT and DAI pool in the DeFi space. Meanwhile, the Uniswap v3 USDC/USDT pool holds $75.85 million in USDC and USDT.
Of particular concern is the rapid increase in USDT composition within these pools, with USDT's share of the Curve 3pool rising from 22% to over 50% in just three days. This surge indicates that USDT holders are actively divesting from the stablecoin and opting for USDC and DAI instead. As a result, the Curve 3pool has experienced a net inflow of around $120 million in USDT sell pressure.
While the current selling activity is not necessarily an attack on USDT, analysts from Blockworks Research suggest that such a significant dump could be a precursor to more significant events. The selling pressure is especially worrisome due to its potential to accelerate a depeg, particularly in the Uniswap v3 pool, where liquidity is concentrated around the $1 price level. A depeg of USDT could have catastrophic implications for the crypto economy, given its recent market share gains over the regulated USDC stablecoin following regulatory actions against US-based crypto firms by the Securities and Exchange Commission (SEC).
The uncertain situation surrounding Tether's stability is further compounded by its lack of a comprehensive audit. Although Tether has maintained that USDT is backed by equivalent assets held in reserve, including cash and bonds, the company has yet to provide a proper audit and has only offered attestations regarding its ability to meet obligations. This instability in Tether comes at an inopportune time for the broader crypto industry, which is already grappling with increased scrutiny and enforcement actions from regulatory bodies like the SEC and the Commodity Futures Trading Commission (CFTC).
The implications of Tether's potential troubles extend beyond the stablecoin itself. Stablecoins like USDT serve as low-volatility assets that provide a convenient means for traders to exit more volatile cryptocurrencies. If USDT were to lose its peg to the US dollar, it could generate fear and uncertainty in the market, impacting the overall stability of the crypto ecosystem.
In response to the concerns surrounding USDT, Tether's CTO Paolo Ardoino took to Twitter to reassure investors. He acknowledged that markets are currently edgy but emphasized that Tether is prepared to address any redemptions and swap requests from holders. Ardoino's remarks come amid ongoing scrutiny of Tether's dollar-backing, with critics questioning the veracity of the company's claims regarding its reserves.
At present, USDT stands as the industry's third-largest cryptocurrency by market capitalization, trailing only Bitcoin and Ethereum. While Bitcoin and Ethereum are subject to price volatility, stablecoins like USDT are designed to maintain a fixed value by pegging them to fiat currencies such as the US dollar or British pound. Consequently, any loss of peg can trigger concerns and impact investor sentiment.
The recent activity in Curve Finance's 3pool has further heightened scrutiny of Tether. The 3pool is a prominent decentralized exchange enabling the exchange of like-assets. Comprising the three largest stablecoins—USDT, USDC, and DAI—the 3pool allows investors to execute arbitrage trades should any of the stablecoins deviate from their intended peg. Presently, the pool has seen a substantial influx of USDT, indicating investor eagerness to exit the stablecoin.
The prominence of USDT within the 3pool has reached levels not witnessed since November 2022 when FTX, led by Sam Bankman-Fried, filed for bankruptcy. This comparison highlights the potential magnitude of the situation and further emphasizes the need for close attention to the stability of Tether and its implications for the broader crypto industry.
As the situation surrounding Tether unfolds, industry participants and market observers will closely monitor developments to assess the potential consequences and implications for the stability of the crypto market.
