Tether, the world’s most-valuated dollar-pegged cryptocurrency, plunged to $0.95 the previous day but bounced back half an hour later and started trading at $0.998. This incident was caused by the devaluation TerraUSD, another stablecoin. Tether’s decline was exploited by traders who made their fortunes.
The price of Tether, a stablecoin, dropped after TerraUSD, a dollar-pegged cryptocurrency, fell to $0.30. This raised concerns that future events could cause a chain reaction. TerraUSD isn’t backed by any real money. Nicholas Bonnet, a cryptocurrency broker analyst, stated that some traders took advantage and started to buy Tether tokens at a lower price and then exchange them for face value.
Stablecoins can be described as an analog of bank accounts in the cryptocurrency world. Investors can store their funds there during extreme market volatility. Tether (the largest stablecoin) and USDC (the second largest) are backed with real money, which can be used to exchange digital assets.
Tether, the company behind the cryptocurrency, has been long doubted by market participants. They don’t have enough assets to support the peg. The Attorney General of New York was involved in the investigation and it became clear that Tether had not only cash, but also security. The company then began to decrease the percentage of securities, and promised to keep this trend going.
Paolo Ardoino (Tether CTO) responded to the incident saying that cryptocurrency owners will always have the option to redeem their tokens for $1. The company purchased $300 million worth digital assets at $1 and is now preparing to redeem them for $2 billion. This confirms their stability.