Stablecoin No.1 Tether Warning Signs? ... Anxiety Spreads Due to Luna Incident

Decrease in Market Capitalization and Active Wallets Count

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] Concerns are growing over stablecoins, which are designed to be pegged to fiat currencies, following the crash of virtual currencies Luna and TerraUSD (UST). In particular, Tether (USDT), the leading stablecoin by market share, is experiencing not only a decrease in market capitalization but also a decline in the number of active wallets.

According to cryptocurrency data analytics firm Glassnode on the 24th, the number of active USDT wallets decreased from 71,481 on the 18th of this month to 39,175 on the 22nd. This represents a 45.20% drop in just four days. Active wallets refer to wallets used to send or receive cryptocurrencies. The number of active wallets increased to 84,541 and 111,053 on the 11th and 12th of this month, respectively, when USDT showed signs of depegging from its $1 value, dropping to $0.9958 on the 11th and $0.9974 on the 12th. The rise in wallet numbers appears to be due to increased buying and selling activity as USDT's price fell. However, the number of active wallets has continued to decline since then.

Trading volume is also on a downward trend. According to data from cryptocurrency market tracking site CoinGecko, the daily USDT trading volume at the beginning of this month was $46.8342 billion (approximately 58.9489 trillion KRW), but it decreased to $33.8467 billion the day before. On the 22nd, it recorded the lowest volume this month at $29.3986 billion. Market capitalization also fell from the $83 billion range to $73.33582 billion the day before.

Stablecoins have gained popularity among investors because their value is pegged to fiat currencies, allowing them to avoid volatility. Additionally, investors can earn interest by purchasing or depositing stablecoins in decentralized finance (DeFi), making them a key currency in the market. USDT has maintained about a 47% market share in the stablecoin market and has recorded trading volumes exceeding the combined volumes of leading cryptocurrencies Bitcoin and Ethereum.

However, USDT was also hit hard by the Luna incident. After the crash, USDT investors reportedly withdrew about $10 billion in cash. Concerns about insolvency have continued to be raised. Furthermore, U.S. Treasury Secretary Janet Yellen pointed out the bank run issues related to stablecoins and advocated for regulatory measures. As suspicions grew, the Tether Foundation eventually disclosed that it holds reserves worth $82 billion as of the first quarter of this year. It also announced that its holdings of corporate bonds and commercial paper (CP), which have been criticized for their volatility and unsuitability as collateral, decreased by 20% in the second quarter compared to the previous quarter.