Stablecoin Supply and Cash Reserves Called into Question as Crypto Funds Exodus

Cryptocurrency investors and traders have cashed out $7.7 billion from the stablecoin Tether (USDT), causing its market capitalization to drop 7.8% to $76 billion over the past seven days.

According to Tether's latest reserves report for December 2021, the amount withdrawn from the top stablecoin is almost double the $4.1 billion it held in cash reserves at the end of 2021.

To maintain Tether's peg to the U.S. dollar, the company behind the token backs USDT with assets such as cash, bonds and U.S. Treasuries, with the goal of having each token backed by at least $1 worth of assets.

According to the latest reserves report, the company has total assets of at least $78.6 billion, of which about $4 billion (5%) is cash.

However, the company appears to be able to maintain its cash reserves despite the “bank run” situation caused by the collapse of algorithmic stablecoin TerraUSD (UST), with investors fleeing not only the stablecoin, but the entire crypto market for fear of a collapse.

Another transparency report, which is updated daily, shows that 6.36% of Tether’s assets are currently held in cash, or roughly $4.8 billion if Tether’s reserves are closely tied to USDT’s market capitalization.

On May 12, market panic caused USDT/USD to fall below $0.99 on major exchanges, causing Tether to issue a statement at the time that it would execute USDT redemption at a price of $1.

On the same day, Tether’s CTO Paolo Ardoino said in a Twitter Spaces chat that most of the company’s reserves are held in U.S. Treasuries and that the company has reduced its exposure to commercial paper over the past six months.

Tether, which has come under scrutiny for its secrecy about its reserve holdings, did not release details of its reserves for the first time until May 2021. The published report still does not specify exactly which assets the company has invested in.

This opacity, combined with the recent brief decoupling, has some investors rushing to swap their Tethers for another popular USD stablecoin, USD Coin (USDC), which is audited and fully backed by cash and U.S. Treasuries support.

On May 13, Jeremy Fox-Geen, Circle's chief financial officer, published a blog post in response to the stablecoin turmoil, reiterating that the 50.6 billion USDC in circulation of USD Coin is fully backed by cash and U.S. Treasury bonds.

Data from CoinGecko further shows that investors have found a safe haven in USDC, which jumped 6.3% in market value between May 3 and May 17, with an inflow of $3.1 billion.

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