Will “stablecoin instability” be a crypto “Lehman” moment?

The algorithmic stable currency UST has been seriously decoupled, the Luna token is almost “returned to zero”, the largest stable currency Tether by market value briefly fell below $1 on Thursday, and major blue-chip tokens have slid to the recent freezing point, which once reached $2 trillion in crypto currency. The market cap has shrunk to $1.3 trillion, and the crypto market is in for a bloodbath.

Some analysts suspect that “stablecoin instability” could become crypto’s “Lehman” moment.

In 2008, Lehman Brothers, the fourth largest investment bank in the United States, announced that it filed for bankruptcy protection after failing to negotiate an acquisition due to its investment failure, which triggered a shock in the global financial market. Corresponding to today’s crypto market, UST crashed this week, and when the stablecoin that was supposed to be pegged to the US dollar 1:1 fell to a low of $0.30 on Wednesday, crypto investor Aaron Brown told Bloomberg: “It’s a bit like the situation now. When the brokerage Bear Stearns collapsed, attention began to focus on whether Lehman would fail.”

Tether’s brief decoupling raises concerns

The decoupling event of the stablecoin UST has been fermenting for several days, and people have become suspicious of other stablecoins after seeing the UST thunderstorm. Coincidentally, Tether (USDT), the stable currency with the largest market capitalization, also experienced a decoupling phenomenon.

On the morning of May 12, the proportion of assets in the 3 pools worth $1.9 billion on Curve was seriously skewed. The proportions of DAI, USDC, and USDT were 8.12%, 7.7%, and 84.17%, respectively. The pool has a value of 1.6 billion USDT, with only about 300 million liquidity available for exit. According to Curve, if USDT accounts for more than 87%, it will accelerate the decoupling of USDT.

The stablecoin then fell to as low as $0.95 on some exchanges. At the same time, Tether CTO Paolo Ardoino reminded on Twitter that Tether is executing USDT redemptions at a price of $1 through tether.to.

Screenshot 2022-05-12 18.30.45.png

As of now, USDT has basically recovered its anchoring. Tether issued a statement: “Tether has remained stable through multiple black swan events and highly volatile market conditions. Even in its darkest days, Tether has never failed to honor any redemption requests from verified customers. Tether will continue to do so. , which has always been its approach.”

The decline of USDT is more worrying than the collapse of its stablecoin peers such as UST. USDT is backed by real-world financial assets, and its de-pegging could have ramifications for traditional markets and the crypto space.

Vijay Ayyar, international head of cryptocurrency exchange Luno , said Tether’s move could be “speculation-driven fear” due to the UST slump.

“If a stablecoin pegged to the physical dollar (not an algorithmic stablecoin) breaks down, things will quickly get ugly and could lead to cross-margin selling in other asset classes,” OANDA senior analyst Jeffrey Halley wrote in his analysis. “.

“Contagion Effect”

Unlike the collapse of Lehman Brothers in 2008, which triggered a debt default that led to the domino effect of the global financial crisis, UST’s market cap may not be enough to cause a system-wide cryptocurrency collapse. However, having said that, negative market sentiment could lead to further weakness in cryptocurrency prices.

According to Coinmarketcap data, the current market value of all stablecoins is around $167 billion, a further 7.8% drop from the $181.3 billion on May 10.

Screenshot 2022-05-12 18.17.06.png

Lucy Gazmararian, founder of crypto venture fund Token Bay Capital, told Fortune Magazine: “Any contagion is likely to be related to negative sentiment and selling pressure rather than the result of any expansion of cross-chain risk at the infrastructure level. The collapse of UST spooked more broad cryptocurrency market and led to mass sell-offs by retail investors.”

Anant Jatia, founder of Greenland Investment Management, wrote on LinkedIn that the collapse of the Tether peg “would destroy a large part of the crypto ecosystem” given that Tether became the center of cryptocurrency liquidity.

But according to GlobalBlock analyst Marcus Sotiriou, as long as Tether doesn’t follow the same path as Terra, the cryptocurrency can avoid its “Lehman Brothers moment.” “Some are calling this a ‘Lehman Brothers’ moment because of the potential for contagion, but I’m optimistic that the fall in UST won’t be catastrophic…I believe the USDT anchor will Will recover because I think Tether’s reserves are adequately backed and its mechanism is more secure than the UST stablecoin.”

Sotiriou added that Terra’s implosion could have broad implications for the crypto market, as many projects and businesses are exposed to stablecoins, including many funds, venture capital and market makers, which could force them to liquidate other positions.” .

Perhaps the outbreak of the crisis is the only way for all financial products, bull markets and bubbles, whether the US government will bail out the market is unknown, because the current law does not provide comprehensive standards for stablecoin issuers. The Biden administration has urged Congress to pass legislation to regulate the issuers of such assets, U.S. Treasury Secretary Janet Yellen told Senate lawmakers on Tuesday that TerraUSD’s slump added to the administration’s concerns, including traditional asset-backed and Stablecoins, including algorithmic varieties, may be affected by investor runs, calling on Congress to formulate a regulatory framework as soon as possible.

“With $1.3 trillion currently tied to the virtual currency market, any threat to this market would also have an impact on real-world wealth, and we expect the U.S. to do more in this regard,” DataTrek Research said in a Thursday report. Active Regulation”.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/will-stablecoin-instability-be-a-crypto-lehman-moment/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2022-05-12 23:05
Next 2022-05-12 23:06

Related articles