Many investors were understandably concerned that their other cryptocurrency holdings might also suffer a similar fate after the Terra Luna (UST) meltdown rocked the cryptocurrency industry to its foundations. To some extent, this apprehension contributed to the crypto market’s worst decline since 2020. When discussing USDT, such concerns increase exponentially (Tether). One key distinction between USDT and UST is the former’s far larger market share; at 7%, USDT is the third-largest cryptocurrency in circulation after Bitcoin and Ethereum while the latter is the uncontested king of the stablecoin market, accounting for around 45% of the total.
By the way, if you want to swap 1 UST to USD, you can always use LetsExchange.
A collapse in USDT value would have serious consequences. A Tether meltdown would be a crypto catastrophe on par with the Great Depression if Terra Luna were a financial institution in the blockchain industry.
When Tether’s value dropped to as low as $0.96 on May 12, the stable coin’s developers promised they would make it up to investors.
To be sure, as of this writing, Tether has kept its value stable by disbursing funds from its own reserves. However, everyone who has spent any significant amount of time immersed in the crypto realm is aware that USDT is ‘hella murky,’ in the words of the crypto community.
However, although Tether has said that more than 75% of USDT is backed by “cash and financial equivalents,” the devil is in the details. To be exact, commercial paper accounts for 65.4% of Tether’s overall reserves. That’s more than fifty percent of their entire cash on hand. In other words, only around 3% of total reserves are held in liquid form at any one time.
Commercial paper, or “commercial paper,” is a kind of short-term, unsecured debt obligation issued by financial institutions and large corporations as a low-cost alternative to other forms of funding.
May Tether fail?
Yes. The issue is, will it turn out to be successful? It seems that there is disagreement among the experts.
On Tether, there are what seem to be identical pillars to those that were obliterated on Terra. If the FUD gets out of control and another run-on-the-bank situation takes place, there is a possibility that the government does not have the easily accessible funds to entirely bail it out.
The growing concern that governments have shown in maintaining a stable currency may have been a driving force behind the de-peg of Tether. The high degree of mistrust, the FUD surrounding the crypto market, and the shock investors acquired from the Terra Luna debacle may force the peg to tremble much more than it currently is as a result of the ramifications.
The situation with Tether seems to be steady for the time being, but nobody can predict how long this will last. But nothing equals the security of cold, hard cash, so if you’re searching for total safety, you may want to consider depositing your money in plain old fiat currency, which is where the cryptocurrency market got its start.
You probably want crypto to be successful, but you should be aware that tomorrow does not come overnight. You should be pragmatic in your attitude to the upcoming storms and keep a watchful eye on the situation. Additionally, you should only spend what you can afford to lose in the event that you do lose anything.
Quick reminder: You can use the Helium to USD converter for fast and secure cryptocurrency conversion.