Stablecoin Market in Flux: More Than $2 Billion in USDC Redemptions in 30 Days

February 10, 2023 Bitcoin.com

Stablecoin Economy Sheds Another $3 Billion in 44 Days

January 28, 2023 Bitcoin.com

Tron’s USDD Stablecoin Experiences Fluctuations Again, Drops Below $1 Parity in Early 2023

January 11, 2023 Bitcoin.com

Tron’s Stablecoin USDD Deviates From the $1 Peg, Justin Sun Says Team Deployed More Capital

December 12, 2022 Bitcoin.com

Stablecoin Economy Continues to Shrink Shedding Close to 5% in 2 Months

November 28, 2022 Bitcoin.com

Major stablecoins destabilized as market volatility and redemptions surge

November 11, 2022 Coin Telegraph

Circle

Nearly all major stablecoins lost their dollar pegs amid the FTX saga, but most have recovered again as markets stabilize.

Plunging cryptocurrency prices are not the only consequence of this week’s FTX-induced crypto contagion.

Significant market volatility this week induced by the collapse of the FTX exchange has impacted stablecoins with many of them de-pegging temporarily.

According to CryptoQuant senior analyst Julio Moreno, nearly all leading stablecoins have experienced some level of peg volatility this week.

The world’s dominant stablecoin, Tether (USDT) temporarily declined to $0.97 on Nov. 10 as redemptions surpassed $600 million over the past two days, he noted.

CoinGecko currently reports that USDT is still slightly below its peg, trading at $0.998 at the time of writing.

Cointelegraph reported the Tether de-pegging incident citing evidence that FTX and sister company Alameda Research were attempting to short USDT.

Crypto market volatility has gone up tremendously in the last few days amid the FTT/FTX downfall.

How are stablecoins doing in this environment?

Tether's price shortly declined to $0.97 today as redemptions surpass $600M in the last 2 days. pic.twitter.com/52eAtBs3NP
— Julio Moreno (@jjcmoreno) November 10, 2022

Circle’s USDC has not been immune from the volatility either as redemptions topped $1 billion. The stablecoin fell to $0.977 very briefly yesterday but rapidly regained its peg according to CoinGecko.

TrueUSD redemptions barely surpassed $1 million, Moreno noted, but that didn’t prevent a de-pegging to $0.98 yesterday. The Paxos USDP stablecoin dropped as low as $0.96 as redemptions hit $100 million, he noted.

There was some volatility for the Binance stablecoin, BUSD, on the Gemini exchange resulting in a brief dip to $0.98.

Tron’s algorithmic USDD stablecoin is still way off its peg, currently trading at $0.973 according to CoinGecko. It fell as low as $0.952 yesterday at peak volatility.

Concerns over the collateral backing the stablecoin are rising as Tron’s TRX token, which is used to redeem USDD, has tanked 12% since the beginning of the week. Justin Sun also accused FTX and Alameda of shorting USDD.

The de-pegging incidents coincided with a slew of stablecoins leaving the FTX exchange on Nov. 10.

FTX Exchange (0x2faf) has resumed transfer out 1 hour ago.

A total of 99 transfers were made, with $4,433,330 stablecoins.

Including:
28 transfers of $USDC, 3,985,236 $USDC in total.
22 transfers of $USDT, 325,569 $USDT in total.
3 transfers of $BUSD,122,526 $BUSD in total. pic.twitter.com/CdsSG1aWc9
— Lookonchain (@lookonchain) November 10, 2022

At the time of writing, most major stablecoins including USDC, BUSD, USDP, GUSD, and TUSD had returned to their dollar peg, meaning market participants fearing another Terra-type stablecoin collapse can breathe easy again for now.

Markets have recovered marginally from yesterday’s rout with a 5% gain in total capitalization which was back over $900 billion once again.

Tron’s stablecoin USDD loses dollar peg on suspected selloff by Alameda Research

November 10, 2022 Coin Telegraph

Alameda Research

Wallets associated with Sam Bankman-Fried's Alameda Research could be behind the dollar de-peg, alleges Tron's founder.

In April 2022, the Tron network launched USDD, a token pegged to the U.S. dollar, as an "over-collateralized stablecoin," meaning its likelihood of slipping below $1 should be lower due to excessive reserves backing its valuation.

USDD stablecoin slips below $1 peg

But it was not enough to keep USDD's price anchored to $1 on Nov. 8 when some whales dumped over 11 million USDD tokens to seek exposure in rival stablecoins Tether (USDT) and USD Coin (USDC). A day later, USDD's price fell to as low as $0.96, followed by a modest recovery to $0.98 on Nov. 10.

*USDD price performance on a 24-hour adjusted timeframe. Source: Messari*

The selling pressure was visible more broadly in the USDD liquidity pool on Curve's decentralized finance protocol. As of Nov. 10, the pool was heavily imbalanced, holding nearly 82.50% in USDD and the rest in USDT, USDC, and DAI stablecoins.

Tron founder Justin Sun speculates that Alameda Research, a crypto hedge fund headed by FTX's Sam Bankman-Fried, could be the whale dumping its USDD holdings to avoid insolvency. Alameda's balance sheet reportedly was 50% FTT (FTT), FTX's native token that has recently fallen more than 90%.

I think probably Alemeda just sold their USDD to cover the liquidity of ftx exchange. The pool currently is back with a healthy rate. pic.twitter.com/oSIzUNqE0Z
— H.E. Justin Sun (@justinsuntron) November 9, 2022

Miscalculated collateral reserves

USDD is issued by Tron DAO Reserve (TDR), which also serves as the custodian of its collateral. TDR is primarily responsible for selling the collateral to maintain USDD's peg in the event of a sell-side shock.

In theory, USDD appears sufficiently backed by a $2-billion pool of crypto collateral in the form of Bitcoin (BTC), Tron (TRX), and USDC, with the reserves reportedly outweighing the stablecoin supply by over 283%.

*USDD supply versus collateral. Source: USDD.io*

But there's a catch.

Currently, almost all the stablecoin collateral worth in TDR's reserve wallets are staked and earning yields in JustLend, the largest lending protocol in the Tron ecosystem by total-value-locked (TVL). Meanwhile, 99% of TRX collateral is locked inside a "staking governance" contract.

TDR also appears to be incorrectly including burnt TRX worth over $725 million as collateral. Overall, that leaves the DAO with about $600 million worth of USDC and $236 million worth of BTC in its liquefiable reserves.

In other words, an almost 113% collateral ratio versus the 283% boasted.

Bitcoin, TRX prices slide

USDD's collateral ratio could fluctuate further as its reserve assets, BTC and TRX, undergo price declines.

Notably, BTC's price has plunged by more than 22% week-to-date to around $16,500 in a crypto market meltdown led by the Alameda-FTX fiasco. On the other hand, TRX wiped approximately 12% off its valuation in the same period, trading at around $0.05 on Nov. 10.

*TRX/USD weekly price chart. Source: TradingView*

The Tron token now eyes a break below its support long-standing support confluence, comprising its 200-week exponential moving average (200-week EMA; the blue wave) near $0.052 and its 0.236 Fib line near $0.055.

This may push TRX on an extended decline toward the $0.022-$0.030 range (marked in red in the chart above). This area was instrumental as a consolidation channel in August 2020-January 2021 and January 2019-July 2021.

Furthermore, it served as support between February and November 2018.

At the same time, Bitcoin has entered the breakdown phase of its prevailing inverse-cup-and-handle pattern, now eyeing $14,000 as its primary downside target.

*BTC/USD weekly price chart. Source: TradingView*

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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