USDT decoupling again? What the hell are people talking about when they say USDT is depegged?

The crypto community has perhaps gotten a little too FUD these past two weeks with U.S. regulators cracking down on cryptocurrencies.

The latest FUD is USDT, and the New York Attorney General recently provided Tether financial documents to CoinDesk, including details of customers and bank statements. As the news spread, the market price of USDT and the US dollar were slightly decoupled.

USDT depegged again?

On June 15, data from Curve3pool showed that the proportion of stablecoins in the 3pool pool was out of balance. Among them, the proportion of USDT soared to 76% at 08:00 on June 15, and USDT was slightly decoupled to 0.997. In addition to Curve3pool, a similar situation also occurred in the Uniswapv3USDC/USDT liquidity pool.

Curve 3pool is a liquidity pool composed of three stablecoins: DAI, USDC and UDST. Ideally, all three stablecoins would have a 33.3% share. When a certain stablecoin accounts for more than 33.3%, it means that investors are using this stablecoin to swap two other stablecoins.

In the USDT case on June 15, investors were selling USDT in exchange for USDC or DAI. The USDT inflow and outflow of Curve3pool also shows the same. Within 24 hours, Curve3pool inflowed about 200 million USDT.

The reason why the encryption community pays attention to the deviation of stablecoins in Curve3pool may be because Curve3pool is the largest stablecoin fund pool, with a total lock-up value of 410 million US dollars, and its reflected price is indicative in DeFi.

But on the other hand, the price decoupling of USDT in Curve3pool may not be as important as imagined. There are three reasons: 1. Although the total lock-up value of Curve3pool is 410 million US dollars, compared with the peak period of 6 billion US dollars, it has dropped by more than 93%. 2. Compared with USDT’s total circulation of USD86 billion, the sales volume of USD200 million may not be enough to affect the overall market price of USDT. 3. As long as Tether maintains a 1:1 redemption of USD, USDT will be "decoupled" on Curve3pool, and there will naturally be market arbitrageurs to balance its price.

What the hell are people talking about when they say USDT is depegged?

According to the Tether white paper, the USDT operating mechanism is very brief. When Tether gets the customer’s USD 1 legal currency, it will correspondingly mint 1 USDT, and Tether will return USD 1 worth of legal currency to the customer after receiving the customer’s 1 USDT redemption request.

**Tether said that its stablecoin USDT is backed by US dollars 1:1, which means that at the two key nodes of casting USDT and redeeming US dollars, Tether guarantees 1:1 casting and redemption. ****Tether does not guarantee that USDT will always be equal to 1 USD in the circulation process. **

Therefore, **USDT has two prices, the market price and the minting/redeeming price. **Tether has never guaranteed that the market price of USDT is pegged to 1 US dollar. It only guarantees to mint USDT or redeem US dollars at a ratio of 1:1, plus 0.1% deposit/withdrawal fee (two-way charge).

In other words, **USDT market price has nothing to do with Tether. **Tether or its relevant stakeholders even hope that the USDT market price will be lower than 1 US dollar, so that they can recover USDT at a low price. Of course, for the sake of long-term interests and stable operations, Tether may not do this.

**Because Tether's business is really a very good business. Tether takes the U.S. dollars deposited by users and invests these U.S. dollars in U.S. treasury bonds, overnight repurchase, regular repurchase, money market funds and other almost risk-free, highly liquid income products. ****Tether reserves are completely It is a "chicken that lays golden eggs" and a real "earning by lying down". **

This is also true. According to the latest data from Tether, the USDT issuer, Tether's profit in the first quarter of 2023 alone will reach 1.48 billion US dollars, and its excess reserves will reach 2.44 billion US dollars.

In the market, various factors such as short sellers, fake news or supervision will cause FUD in the market, which will cause investors to sell USDT, causing the market price of USDT to break away from $1.

**But as long as Tether fulfills its promise at the two entrances of minting USDT and redeeming USD according to 1:1, it can be said that USDT is always pegged to USD 1:1. ** Needless to say, minting, if you send Tether reserves, he will definitely be willing to accept and give you 1:1 USDT.

Can Tether guarantee USDT1:1 redemption?

According to Tether's 2023 first quarter reserve certification report, if Tether's report is credible, Tether's direct holdings of treasury bonds exceed $53 billion, accounting for more than 64% of the total reserves. These treasuries, along with other reserves in the cash and cash equivalents category (such as overnight repos, term repos, money market funds, cash, and bank deposits), represent nearly 85% of Tether's total reserves**, and these high-quality, liquid Strong assets offered to Tether for quick sale to process redemption collateral.

After USDC reserves were implicated in the bankruptcy of Silicon Valley Bank, Tether reduced its cash and bank deposits by 90%, and its cash and bank deposits currently total 480 million US dollars.

The remaining 5% is some high-risk precious metals, bitcoin, other investments, corporate bonds and mortgages, what if this part of $818 million goes wrong? Tether said it has $2.44 billion in excess reserves.

Going a step further, Tether has already made sufficient preparations in the terms of service. **Tether reserves the right to "return in kind" in the terms of service of the USDT stable currency. When liquidity is insufficient, Tether can return bonds, stocks or "reserves" to users. other assets held in gold” without having to return the U.S. dollars. ** "If any reserves held by Tether to support TetherTokens become illiquid, unavailable or lost, it will delay the redemption or withdrawal of TetherTokens, and Tether reserves the right to delay the redemption or withdrawal of TetherTokens, and Tether also reserves the right to redeem TetherTokens in kind, including securities and other assets held in reserves. Tether will not discuss whether TetherTokens previously traded through the website can be traded at any time in the future (if any). make no representations or warranties."

**So, will the Tether reserve certificate be faked? First, countless regulatory agencies are staring at Tether, and the cost of counterfeiting is too high; 2. As mentioned in the previous section, Tether Reserve is a "golden egg" and a real "earning" product. The benefit/risk ratio is too small. **

Unless U.S. Treasury bonds, overnight repurchase, term repo, money market funds, cash and bank deposits all collapse, then such a large-scale problem is simply beyond Tether's control.

Perhaps because of this, TetherCTOPaoloArdoino directly stated on Twitter: "Tether is ready as always, and we are ready to redeem any amount of funds."