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Investors pulled out billions of dollars in value from the Tether circulatory supply after regulators raised red flags around stablecoins.
Over the past two weeks, more than $10 billion in value has been withdrawn from the circulating supply of stablecoin issuer Tether. The massive extraction stems from heightened regulatory concerns about stablecoins following the recent collapse of UST. On Wednesday, May 11th, former third-largest stablecoin UST plunged to depths of 26 cents alongside sister token Luna, which also sank 96%.
As of press time, UST is changing hands at just 6 cents.
Tether Circulatory Supply Withdrawal
Due to its drastic circulatory supply reduction, Tether now has around $73 billion out in the open market from a record $84 billion as of May 11th. In fact, approximately $1 billion was withdrawn on late Friday alone from the world’s largest stablecoin. A day after UST sank, Tether dipped temporarily below its dollar parity to 95 cents.
Tezos blockchain co-creator, Kathleen Breitman, commented on the fallout from the UST plunge and the recent Tether development. Speaking with CNBC, she said:
“Whenever there’s a failure or a catastrophe in crypto, the fear is always that someone will misread the situation and overcorrect in a position that’s not helpful for the entire community writ large.”
Furthermore, Breitman sounded off on the ripple effect created by the mishap in the digital currency space, questioning its logic.
“As much as I relish seeing things that don’t make sense fail, there’s always a tinge of like, ‘Are people going to extrapolate from this that everything that’s a stablecoin is unsound?’ That’s always the big fear,” noted Tezos blockchain co-creator.
UST and Luna
The fallout from the Terra (UST) and Luna collapse sent massive shockwaves throughout the crypto marketplace. This caused the price of Bitcoin (BTC) and a majority of the altcoins to drop dramatically, which raised red flags for regulators.
The total value of holders’ wealth wiped out due to the triggered sell-off in the Luna token exceeds $40 billion. In addition, UST did not have the typical backing of a fiat currency held in a reserve – unlike Tether. Instead, the controversial stablecoin relied on a series of complex engineering layers that maintained price stability. This mainly happened via a destruction and creation process.
In a futile effort to prop up the dwindling price of UST, Terra creator Do Kwon plowed billions of dollars’ worth of accumulated BTC into the market. At the time, some observers viewed Terra’s Bitcoin play as a potential masterstroke to save UST. In fact, independent economist Frances Coppola weighed in then, saying:
“The big problem when you’re dealing with a partially collateralized stablecoin like UST is that your hard collateral — bitcoin, in this case — is going to be considerably more valuable to [investors] than your governance token.”
However, the crypto safety net, deployed through Do Kwon’s Luna Foundation Guard fund, achieved no success.