© Jakub Porzycki via Reuters Connect
By Geoffrey Smith
Investing.com — The world’s largest stablecoin fell below its theoretical 1:1 peg against the dollar on Thursday as the global cryptocurrency selloff worsened.
As of 2:55 a.m. ET (0655 GMT), was trading at 97.25 cents, more than 2.5% below its peg.
There was no immediately obvious explanation as to why investors would be willing to sell their Tethers at a discount. However, the crypto space has been shocked for the past two days by the world’s third-largest stablecoin and its related LUNA token.
Unlike TerraUSD, the owner and issuer of Tether, cryptocurrency exchange Bitfinex, has always claimed that Tether is entirely backed by dollar reserves. The value of TerraUSD, on the other hand, is ultimately supported by a reserve made up largely of , which slumped to a 17-month low this week.
Tether is most widely used as a vehicle for parking funds, with crypto enthusiasts changing their holdings between various digital currencies. It has a market capitalization of over $80 billion and is by far the largest stablecoin in the world, although it has lost market share to and, in recent months, TerraUSD.
Global financial regulators have in the past expressed concern that stablecoins, which form a vital part of the global cryptocurrency universe, may not be able to deliver on their promises of constant asset value. . A May 2021 report by Bitfinex showed that only 2.9% of Tether was actually backed by cash, while almost half of its reserve was backed by commercial paper.
This report came three months after Tether settled a dispute with the New York Attorney General’s office over the composition of its reserves. New York Attorney General Letitia James said at the time, “Tether’s claims that its virtual currency was fully backed by US dollars at all times was a lie.”