Tether’s USDT, the leading stablecoin in the crypto realm, has recently experienced an unexpected twist as it depegged from its intended $1 value on major exchanges. This development follows Tether’s announcement on December 15 regarding a wallet-freezing policy in collaboration with law enforcement agencies, which included the Department of Justice (DOJ), FBI, and Secret Service.
USDT Takes a Dive, Reflecting Deviation from Dollar Peg
Data from CoinMarketCap reveals that USDT witnessed a dip, dropping as low as $0.985 on prominent exchanges such as Binance, Coinbase, and Kraken. This departure from its dollar peg has raised eyebrows within the crypto community and is seen as a response to the increased scrutiny surrounding Tether’s recent policy changes.
Wallet Freezing and Collaboration with Authorities
On December 15, Tether sent a letter to Senator Cynthia M. Lummis and Congressman J. French Hill, disclosing that it had frozen crypto wallets containing over $435 million in USDT tokens based on requests from government agencies throughout 2023. This move underscored Tether’s extensive cooperation with authorities to combat criminal activities involving USDT.
In the letter, Tether CEO Paolo Ardoino expressed gratitude for the opportunity to address concerns raised by U.S. lawmakers and emphasized Tether’s commitment to collaborating closely with law enforcement globally. However, the freezing of a significant value and Tether’s readiness to blacklist addresses has left many in the crypto community surprised and concerned.
Tether’s Posture Under Scrutiny
Tether’s claim to neutrality as a stablecoin issuer is now under scrutiny following the high-profile asset freeze. The considerable value frozen and Tether’s willingness to take action against addresses have led to discussions and debates within the crypto space.
In response to the news, Checkmate, Glassnode’s lead on-chain analyst, tweeted, “Tether is the CBDC. Truthers in shambles,” highlighting the unexpected developments.
Cardano founder Charles Hoskinson also expressed his surprise on the social media platform X, using a GIF to convey his shock and disbelief.
Growth Concerns and Supply Expansion
Beyond the wallet freeze, concerns have risen over Tether’s substantial supply expansion in 2023. Data from Messari indicates that USDT’s market cap surpassed $90 billion, marking a growth of over 70% in the current year alone. Tether minted approximately $23 billion in new USDT in 2023, nearly matching the entire market cap of its stablecoin rival USDC.
While Tether sees this growth as a reflection of robust demand, some investors are viewing it with skepticism. Critics suggest that Tether might be minting unbacked USDT to manipulate Bitcoin prices in conjunction with exchanges, all while preventing redemptions into dollars. This strategy, if accurate, could lead to a collapse if exchanges like Bitfinex or Binance were to encounter issues.
Tether’s Confidence Eroded: What Lies Ahead?
The combination of Tether’s significant supply expansion and compliance with authorities has led to a decline in confidence among crypto enthusiasts. The recent depegging of USDT observed on exchanges has raised concerns about potential instability spreading to the broader crypto market, heavily reliant on USDT liquidity.
Bitcoin often trades at a premium on USDT markets, making the volatility of USDT a matter of concern that may have a ripple effect on the wider market.
Tether’s dominant position in the stablecoin arena is facing challenges as doubts emerge regarding its policies. Rival stablecoins, such as USDC, could gain traction as uncertainty over USDT’s future persists. The coming days will be crucial in determining whether USDT can restore confidence and reclaim its dollar peg or if alternative stablecoins will step into the spotlight.
