According to Kaiko, the USDT depegs in August were not bigger news since they had minimal drama than previous ones regarding pure price.
Kaiko’s crypto data company findings show that the USDT, Tether-supplied United States dollar-pegged stablecoin, has been experiencing a minor depeg for almost all of August. The deep dive report that explored the stablecoin ‘s severity revealed that the worst depeg was on August 7 at approximately 8 a.m. UTC. Its depeg severity was 98%, and traded at a discount on nearly all instruments.
Kaiko Decries Repeated USDT Depeg Gravity
This came after a reported $500M overall net selling on crypto exchanges, including Huobi, Binance, and Uniswap. Kaiko utilizes the total volume of a stablecoin to evaluate depeg gravity. In this case, it generates a threshold for depegs that become smaller with a rise in trading volume.
The Kaiko analyst revealed that the rationale involved is that a rise in stablecoin’s volume increases the value lost from peg deviations. In other words, a stablecoin with a monthly volume of $10bn and trading at $0.995 is more significant than a stablecoin with a $10M monthly volume trading at the same level.
Redemption Minimum and Fees Plunge USDT into Repeated Depegging
The analyst wrote that USDT’s sensitivity was more likely due to Tether’s redemption minimum and fee and reduced liquidity. The situation results in depegs becoming more frequent. The analyst claimed that USDT has an issue with peg stability. The minimum and redemption fees indicate it is rational mainly for holders of USDT to sell the token on the market instead of redeeming it for USDT with Tether.
Stablecoins such as DAI, TUSD, USDC, and DAI also experienced small depeg for the year. However, the report revealed they had a reasonably high stability and were less sensitive to U.S dollar deviations.
The analyst said the clear answer is eliminating the Tether’s fee and minimum redemption. Tether’s reported profits in Q2 amounted to $850mn. Thus, a fee removal would not considerably impact profits except when the firm believes cheaper redemptions would dramatically reduce the supply of USDT.
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