Likein recent days, a central type of token used by traders – called a – also began to decline in value, raising broad questions about the viability of cryptocurrency as an asset class. A few days after one of the biggest stablecoins, called terraUSD, began to drop in value, a second stablecoin showed a similar sign of weakness.
Tether, the world’s largest stablecoin, had a market capitalization of over $82 billion as of Sunday. Since then, the value of a tether has fallen from its designated $1 benchmark to 95 cents at 12:24 a.m. PT Thursday. This follows the trajectory of the earth, which “lost its peg” to the US dollar on Monday and has lost most of its value since then.
As their name suggests, stablecoins are cryptocurrency tokens backed by an asset – often the US dollar, but not always – and designed to hold a stable and consistent value. Many crypto traders prefer to use stablecoins, instead of trading tokens directly or using US dollars, as transactions generally have lower fees and can be processed faster.
The word stablecoin “has been used in the broader blockchain ecosystem to define many different token structures, and the truth is that not all of them are stable in the way we would define them,” Stellar CEO Denelle Dixon Development Foundation, said in an emailed statement. The foundation is a payments-focused non-profit organization and supports a number of stablecoins. Dixon was previously chief operating officer of Mozilla.
The terraUSD and tether price declines come amid dramatic declines in the broader cryptocurrency market. Bitcoin and ether, the two largest cryptocurrencies by market cap, are both trading at prices more than 20% lower than they were seven days ago. The crypto market hasaccording to coinmarketcap.com.
“Right now in crypto, we are seeing a market correction in response to interest rate hikes, systemic risk across all financial markets, and fears about rapidly rising inflation,” Steve Ehrlich said. , CEO of crypto company Voyager Digital. in an emailed statement.
As of 3:00 p.m. PT on Thursday, bitcoin was trading at $28,399 and ether at $1,906. Fears about inflation and rising interest rates may also contribute to the bearish economic outlook for investments outside of cryptocurrency markets.
TerraUSD slid to 36 cents Thursday at 9:35 a.m. PT, after the official terra Twitter account released a statement claiming that the terra blockchain was officially shut down to “prevent governance attacks following high $LUNA inflation and significantly reduced attack cost”.
Although tether has not yet suffered the degree of damage that terraUSD has suffered, it is a much larger stablecoin. The small change in its price can have far-reaching repercussions throughout the entire cryptocurrency ecosystem.
Tether has become an integral part of global cryptocurrency commerce, the mechanism of choice for more than half of all bitcoin traded globally as of September 2021, according to CryptoCompare, a global cryptocurrency market data provider. .
Tether has been embroiled in controversy for years. In 2021, its parent company (also called Tether) and its affiliated cryptocurrency exchange, Bitfinex, were ordered to pay an $18.5 million fine and cease trading in New York State. The fine was imposed on the companies due to a case involving an $850 million cover-up that has disappeared.
“Bitfinex and tether recklessly and unlawfully concealed massive financial losses to maintain their scheme and protect their bottom line,” New York Attorney General Letitia James said at the time of the ruling.
Terraform Labs (the company behind terraUSD) and Tether did not respond to a request for comment.