The collapse of crypto Luna and its associated terraUSD stablecoin were truly unexpected. while many of us were previously unknown to UST, and what the stablecoin actually stands for. It’s a big deal as billions of dollars of crypto wealth have been vaporized by their diving shockwaves across the market.
Looking at the chart of the Cryptocurrency market nowadays, it looks unsafe in every possible direction. As Bitcoin and Ether are at their lowest point since 2020, altcoins, dogecoin and Cardano are falling even worse.
The volatility of virtual currencies and tumultuous economic conditions are not only affecting cryptocurrency but also the stock market. This unprecedented plunge is really painful for crypto investors.
The founding partner of ANT Capital, Jun Yu, tweeted about the risk associated with USDT and cannot redeem USDT 100%. The USDT collapse due to a run is very small. According to a recent report, Tether currently has more capital than debt, the value of its reserves exceeds the market value of the stablecoin issued.
Tether currently has assets worth $82.4 billion and liabilities worth $82.2 billion. While Tether’s assets exceed its liabilities on its books, it has not factored in liquidity risk when valuing its assets and making expected trust loss reserves and splitting its assets. And it is impossible to exclude these risks even after formation.
Furthermore, a recent audit report states that 85.64% of Tether’s assets have relatively good quality liquidity. The share of cash still remains low, accounting for less than 5%, and more are US Treasury bills, which are nearly 47.56%, commercial papers, commercial paper certificates of deposit, currency funds, etc. and another 14.36% of assets comes from other investments, corporate bonds, funds, precious metals and secured loans.
given the safety factor of these 85.64% assets is still questionable. Cash, US Treasury bills and money funds are relatively safe, but the commercial papers and certificates of deposit should be more concerned about safety. They still carry liquidity risk and default risk even though they have 44 days to maturity with an average rating of A-1.
The remaining 14.36% of the Tether assets fluctuate more, and more than 60% of the Tether assets are of good quality and realized in a short time to meet the redemption requirements.
But many small currency holders don’t even have US dollar accounts and Thether’s assets won’t be able to fully exchange all stablecoins. Therefore, it is impossible to exchange USDT 100%.