NEW YORK–Concerns over increased regulatory scrutiny have led investors to withdraw more than $10 billion from the stablecoin Tether.
Tether, which is the world’s largest stablecoin, has seen a decrease in its circulating supply to around $73.3 billion from a record $84.2 billion, according to data from CoinGecko.
Stablecoins, which are purported to be “stable” because they are pegged to the U.S. dollar, temporarily dipped to a low of 95 cents on May 12 after another stablecoin—terraUSD—saw a plunge in value to far below $1, CNBC reported. That decline led to a sell-off in in the associated luna token, which in turn wiped out more than $40 billion in holders' wealth, the report added.
"Whenever there's a failure or a catastrophe in crypto, the fear is always that someone will misread the situation and overcorrect in a position that's not helpful for the entire community writ large," Kathleen Breitman, a co-creator of the Tezos blockchain, told CNBC. "As much as I relish seeing things that don't make sense fail, there's always a tinge of like, 'Are people going to extrapolate from this that everything that's a stablecoin is unsound?' That's always the big fear."
‘Complex Engineering’
CNBC added that unlike tether, UST wasn't backed by fiat currency held in a reserve and instead “relied on some complex engineering where price stability was maintained through the destruction and creation of UST and its sister token luna. Investors were lured in by the promise of 20% savings yields from Anchor, Terra's flagship lending platform, a rate many investors said was unsustainable.”
CNBC further noted regulators and economists have long questioned whether Tether has enough assets in its reserves to justify its stablecoin's purported peg to the dollar.
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