Review the history of stablecoin crash and analyze the potential risks of USDT

Author: Splin Teron, Crypto KOL Compiler: Felix, PANews

This article will examine the history of past stablecoin crashes and discuss the potential risks of USDT and what a USDT crash could mean for the crypto market.

TerraUSD (UST) crashes

On May 9, 2022, a giant whale sold a large amount of UST, causing its price to fall below $1. Due to concerns about the stability of UST, a large amount of funds on Anchor (the UST interest-earning deposit service in the Terra ecosystem, whose APY was once stable at 20%) were withdrawn and UST was sold, which exacerbated the downward trend.

In response, LFG (LUNA Foundation Guard) mobilized its $1.5 billion stabilization fund to support prices. Terraform Lab’s $1.5 billion stabilization fund was also used to rescue the market.

Still, even with a $2 billion attempt and potential supplementary investments, prices continue to fall (Jump, Alameda, etc. are rumored to have offered another $2 billion to rescue UST). Binance suspended the withdrawal of UST and LUNA due to the congestion of Terra (LUNA) network, which caused a large number of pending transactions to accumulate, and then Terraform Labs pursued investors for an additional $1 billion.

It was later revealed that Do Kwon had withdrawn $2.7 billion before going bankrupt. In the latest news, the Supreme Court of Montenegro revoked the bail and extended Do Kwon’s detention until June 16. The court will rehear the case based on the grounds for termination proposed by the High Court, and then make the defendant’s acceptance of bail based on the recommendation of the defense lawyer. Decide. In addition, both the United States and South Korea have requested the extradition of Do Kwon.

What conclusions can be drawn from this?

  • Avoid chasing high interest rates as it may be part of a scam.

  • Diversify assets to prevent total loss of principal.

USDC unanchor event

Now analyze the USDC unanchoring event that occurred in March 2023. At the height of the panic, Depeg reached -25% on some exchanges. These situations are worth looking into as they may be informative in the future – history tends to repeat itself.

The first news that caught people’s attention was the sudden collapse of Silicon Valley Bank, a bank that had been a big part of Silicon Valley’s financial landscape for years.

However, as soon as the news that Circle’s funds are stored in SVB came out, the USDC unanchoring process began. The situation has negatively impacted other stablecoins as well, with traders fearing for their finances and as a result, there has been a massive run on the market. But USDT is not included.

Review the history of stablecoin crashes and analyze the potential risks of USDT

The algorithmic stablecoin DAI has been most affected. The reason is that 48% of DAI is backed by USDC, so there is a direct correlation to its value.

Later, the Circle CEO delivered some good news. He said that 100% of Silicon Valley Bank’s deposits are safe due to the joint rescue plan of the Federal Reserve, the Ministry of Finance, and the FDIC, and withdrawals will be opened the next day after the bank resumes business. Then the market panic gradually dissipated, and the price of USDC returned to a level close to usual.

Review the history of stablecoin crashes and analyze the potential risks of USDT

What conclusions can be drawn from this?

  • The news background deserves attention and analysis, and the crash won’t happen overnight.

Review the history of stablecoin crashes and analyze the potential risks of USDT


Now let’s discuss USDT. According to the latest data, USDT dominates the stablecoin space with a 64.978% market share.

Review the history of stablecoin crashes and analyze the potential risks of USDT

Tether, the USDT issuer, reported net income of $1.5 billion for the first quarter of 2023, with the company’s excess reserves reaching $2.44 billion. In their latest announcement, Tether stated that they invest 15% of their monthly profits in BTC.

Review the history of stablecoin crashes and analyze the potential risks of USDT

The potential collapse of USDT has been a topic of discussion in the cryptocurrency community for a long time. While stablecoins have withstood the harsh bear market, traditional hedge funds insist that USDT’s downfall is only a matter of time.

Review the history of stablecoin crashes and analyze the potential risks of USDT

Opponents of USDT argue that Tether has artificially inflated the cryptocurrency market, leading to increased speculation and giving users a false sense of value.

Proponents dispute these views, but it makes investors more cautious when dealing with Tether.

Hedge funds have been shorting Tether for years, and now more institutional investors are considering similar moves. The trend is driven by concerns about Tether’s financial health and transparency. Regulators have fined Tether for unclear financial reporting, further fueling those suspicions.

Many have been eagerly awaiting an update on the audit. However, Tether was unable to provide this information. Because once announced, the U.S. government will immediately freeze the bank funds holding Tether assets. Tether has insisted it is doing well, with executives calling the many speculations about its finances a stress test.

The decoupling of USDT has happened in 2017 and several other examples, the decoupling rate is 5-10%, but the decoupling time is very short.

Review the history of stablecoin crashes and analyze the potential risks of USDT

A collapse of USDT would have catastrophic consequences for the entire cryptocurrency industry, both in terms of market capitalization and as one of the most widely used assets. However, the best approach for a trader is to be prepared for any situation, stay informed about the latest news, and react accordingly.

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