Nov 10, 2022 - Economy

Tether's USDT stablecoin depegs from dollar for a brief window

Pixelated gold coin falling through a hole above it into darkness below

Illustration: Natalie Peeples/Axios

Tether's stablecoin, and the US dollar it's supposed to be pegged to, briefly diverged on select crypto exchanges in an echo of market turmoil that followed the collapse of Do Kwon's Terraform Labs in May.

Why it matters: Contagion. FTX.com's insolvency and the threat of it going bankrupt is rippling throughout the crypto market, putting a dent in tokens from bitcoin to solana and now, USDT.

By the numbers: The price of USDT traded as low as 98 cents on the Kraken exchange.

  • Other exchanges Binance, Coinbase and OKX showed the stablecoin trading in a range of 97 cents to 98 cents. On the decentralized side, USDT traded as low as 96 cents on Curve.

What they're saying: "No issues. We keep going," Paolo Ardoino, Tether's CTO, tweeted Thursday morning, saying the stablecoin issuer processed some $700 million in redemptions over 24 hours.

  • In a statement on its website, Tether said it had no credit exposure to FTX or Alameda Research.

Between the lines: Crypto chatter points to the key role that Alameda Research played as USDT arbitrageur.

  • Arbitrageurs exploit the pricing differences of one asset across different marketplaces, often just picking up pennies with each transaction. That act also keeps prices in-line with one another.
  • FTX's Sam Bankman-Fried explained such techniques, explaining how an arb could easily find gains by trading the gap between bitcoin prices, say, on exchanges in Japan and South Korea.

Context: "Alameda’s capture of the kimchi premium (and other trades like it) gave SBF the grubstake he needed for his next move, founding the crypto exchange FTX," according to Sequoia Capital's dedicated page on SBF.

  • Sequoia, an investor in FTX, showed limited exposure to the exchange; the firm said it marked down its investment in FTX to zero in an investor letter published Wednesday.
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