Tether withdrawals top $10 billion as UST woes taint stablecoins

Investors have taken more than $10 billion out of tether in the past two weeks as skepticism about stablecoins waxed stronger.

Data from CoinGecko reveals that the world’s largest stablecoin, has seen its circulating supply plunge from a record $84.2 billion on May 11 to around $73.3 billion as of Monday.

About $1 billion was withdrawn late Friday evening.

The cryptocurrency, which is meant to be pegged to the U.S. dollar, temporarily dipped as low as 95 cents on May 12 after another type of stablecoin, terraUSD — or UST — plunged well below $1.

That resulted in a sell-off in UST’s associated luna token, which in turn wiped out more than $40 billion in holders’ wealth.

Unlike tether, UST wasn’t backed by fiat currency held in a reserve. Instead, it relied on some complex engineering where price stability was maintained through the destruction and creation of UST and its sister token luna.

Investors were lured in by the promise of 20% savings yields from Anchor, Terra’s flagship lending platform, a rate many investors said was unsustainable.

Terra creator Do Kwon had also accumulated billions of dollars’ worth of bitcoin and other tokens through his Luna Foundation Guard fund, but nearly all of the funds were depleted in a futile effort to save UST.

Regulators and economists have long questioned whether Tether has enough assets in its reserves to justify its stablecoin’s purported peg to the dollar.

The company previously claimed tether was backed one-to-one by dollars in a bank account, but subsequently revealed it was using other assets including commercial paper — short-term corporate debt — and even digital tokens as collateral after a settlement with the New York attorney general.

Last week, Tether said it reduced the amount of commercial paper it owns and increased its holdings of U.S. Treasury bills.