Largest stablecoin Tether (USDT) briefly depegs as market plummets

The world’s largest stablecoin lost its peg briefly on Thursday amid extremely volatile conditions in the cryptocurrency market. USDT momentarily depegged to $0.95 but has recovered to $0.9921 during the time of writing. 

USDT dropped to $0.95

Amid USDT’s slight drop, other major stablecoins such as USDC, BUSD, and DAI, were seen gaining small points to $1.01.

Despite the fact that Tether has previously faced controversy regarding the transparency of its reserves, it continues to be a major part of the cryptocurrency landscape. However, the price fall is the biggest seen since March 2021, raising concerns about an asset that is crucial to the stability of cryptocurrency markets. 

But, USDT’s depeg is less significant compared to TerraUSD (UST), which was the third-largest stablecoin weeks ago. Since this week, UST and its sister crypto, LUNA, have suffered severe losses. Terra’s LUNA token value has fallen 99.9 percent, trading at under $0.03. The network is experiencing a death spiral scenario, putting heavy selling pressure on LUNA, as UST holders can redeem their tokens for $1 worth of LUNA.

Today, terraform Labs released a statement on emergency measures, including one to boost UST minting capacity. 

Terra is working to avoid collapse

The Layer 1 blockchain’s development firm, Terraform Labs, released a new update Thursday describing several emergency measures it is proposing to avoid total catastrophe.

A proposal to speed up UST burning rate is included in the white paper, which Terraform Labs CEO Do Kwon also endorsed in a statement today. The plan would see minting capacity for UST daily rise from $293 million to $1.2 billion, allowing LUNA holders to cash out their holdings.

It’s expected that this will bring UST closer to peg, but it also means LUNA’s supply will grow at a faster rate. At the time of publication, over 450 million LUNA votes had been cast, with just over 50% in favor of the motion. Around 49% of voters have abstained from the proposal, while just the remaining minority voted against it.

Additionally, to preserve the network, Terraform Labs has suggested a number of “emergency measures.” They include burning all remaining UST in the community pool, burning an additional 371 million UST currently held on Ethereum, and staking 240 million LUNA tokens “to defend the network from governance assaults.”

Other major assets have dropped by double digits today, with ethereum shedding 20% and Solana and Cardano losing over 30%. USDT’s peg against the dollar has broken, briefly hitting a low of $0.95 as investors rush to exit the market. Terra is facing an extremely difficult situation, however.