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USDT is Resilient and Has Undergone a Successful Stress Test With the Collapse of Terra, Says the Team at Tether

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Quick take:

  • The Tether team believes that USDT has proven to be resilient amidst the events surrounding UST’s collapse.
  • USDT’s stability in the last month is evidence that it has successfully undergone a stress test.
  • The resilience of USDT is further amplified by the fact that Tether is fully backed.
  • Tether also recently faced $10 billion in redemption requests which it completed without a single hiccup.

The team at Tether has released a new report highlighting that its stablecoin of USDT has proven to be resilient amidst the events surrounding UST’s collapse. According to the team at Tether, USDT underwent a stress test due to the ripple effect of UST’s depegging and proved successful.

A Fractional Reserve System amplifies Bank Runs.

The report provided a brief history of bank runs dating back to the 1800s and the early 1900s in the United States. In addition, the team at Tether explained the 21st century has not witnessed frequent bank runs apart from the collapse of the Lehman Brothers that ignited the 2008 financial crisis.

However, when they occur, Bank runs ‘are fundamentally caused by a confidence crisis that pushes depositors to withdraw all their money, and because the bank uses a fractional reserve system, the bank cannot fulfill the redemption requests.’

Tether is Fully Backed. Redemption of $10B in USDT is Further Evidence.

The team at Tether further reiterated that USDT has proven time and time again ‘to be able to withstand market volatility, crashes, and fund redemptions that would cause many other protocols and especially banks to fail.’

Additionally, Tether’s resilience is due to the simple fact that USDT is fully backed. The recent rush to redeem $10 billion in USDT is proof that the company has reserves large enough to fulfill requests of that magnitude. The team explained the scenario as follows:

No bank in the world could process the withdrawal of 12% of its outstanding liabilities within a week.

In fact, the size of USD₮ redemptions over the last two weeks rivals the size of the largest banking withdrawals in history. This record is held by requests for $16.7 billion in withdrawals over 10 days from Washington Mutual.

Unlike Washington Mutual, which was shut down and seized by regulators, USD₮ has maintained a stable value and highly liquid markets.

Tether Updates its USDT Reserves. States 47% is US Treasuries.

In the concluding segment of the report, the team at Tether stated that over 47% of USDT’s reserves are now in US Treasuries. Commercial paper now make up less than 25% of its backing, which has been reduced by an additional 20% since March 31st, 2022.

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