By Laura Sanchez
Investing.com - Investors have withdrawn more than $7 billion from Tether since it briefly fell out of parity with the dollar, raising fresh doubts about the reserves underpinning the world's largest stablecoin.
Tether's circulating supply has shrunk from about $83 billion a week ago to less than $76 billion on Tuesday, according to CoinGecko data.
The so-called stablecoin is meant to always be worth $1. But on Thursday, its price fell to 95 cents amid panic over the collapse of a rival token called TerraUSD.
Most stablecoins are backed by fiat reserves, the idea being that they have sufficient collateral in case users decide to withdraw their funds. But a new generation of "algorithmic" stablecoins such as TerraUSD, or UST, attempts to base their parity with the dollar on code. That has been put to the test lately, as investors have soured on cryptocurrencies.
The situation has brought the issue of the reserves behind Tether back into the spotlight. When Tether last disclosed a breakdown of its reserves, cash accounted for around $4.2 billion of its assets. The vast majority ($34.5 billion) consisted of unidentified Treasury bills with a maturity of less than three months, while $24.2 billion of its holdings were in commercial paper, CNBC explains.
The destabilisation of tokens that have the sole purpose of maintaining a stable price has unsettled regulators on both sides of the Atlantic. Last week, US Treasury Secretary Janet Yellen warned of the risks to financial stability if stablecoins are left to grow unfettered by regulation, and urged lawmakers to pass regulation of the sector by the end of 2022.
In Europe, Bank of France governor Francois Villeroy de Galhau said the recent turmoil in crypto markets should be taken as a "wake-up call" for global regulators. Cryptocurrencies could disrupt the financial system if they are not regulated, Villeroy said, particularly stablecoins.
Meanwhile, European Central Bank (ECB) Executive Board member Fabio Panetta said that stablecoins such as Tether are "vulnerable."
The European Union plans to subject stablecoins to strict regulatory oversight with new rules known as the Markets in Crypto-Assets Regulation, or MiCA.
Follow Tether's development here: https://uk.investing.com/crypto/tether/usdt-usd