Stablecoins Destabilized Amid Market Turbulence

The FTX-induced crypto contagion managed to put immense stress on the crypto sector, which not only erased billion of the market capitalization of the sector, but also destabilized the fiat-pegged cryptos like the stablecoins.

Stablecoins have been affected by this week's massive market volatility, which was brought on by the crisis with Sam-Bankman Fried’s FTX exchange, with many of them de-pegging shortly before regaining stability.

Julio Moreno, a senior analyst at CryptoQuant, claims that this week has seen some degree of peg volatility in almost all popular stablecoins.

Stablecoins become unstable?

Tether (USDT), the most popular stablecoin in the world suddenly dropped to $0.97 due to redemptions, as they had topped $600 million over the previous two days, according to Moreno. As of press time, USDT is still trading at $0.9985, according to data from CoinMarketCap.

“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.” Moreno explained.

USD Coin from Circle has also felt the volatility pressure, with redemptions exceeding $1 billion. On November 10, the stablecoin temporarily dropped to $0.977 before quickly regaining its peg.

CryptoQuant’s analyst also noted that TrueUSD (TUSD) redemptions barely exceeded $1 million, but it didn't stop it to go into a slight de-pegging to $0.98 on November 10. As redemptions passed $100 million, the Pax Dollar (USDP) stablecoin fell as low as $0.96, Moreno added.

The Binance stablecoin, BinanceUSD (BUSD), experienced some volatility on the Gemini market and briefly fell to $0.98, but overall remained relatively stable.

How about algorithmic stablecoins?

According to CoinGecko, Tron's algorithmic USDD stablecoin is currently trading at $0.973, which is significantly less than its $1 peg. At its most volatile moment, it dropped as low as $0.952, bringing worries about the collateral supporting the stablecoin are growing as Tron (TRX)’s price has fallen 12%, and is used to redeem USDD. Additionally, Justin Sun added fuel to the fire, claiming that FTX and Alameda had shorted USDD.

“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.” Twitter crypto watchdog Lookonchain added.

Is anyone profiting from the de-pegging?

The FTX-induced stablecoin de-pegging, however, may turn out to be nothing more than sophisticated market manipulation. According to crypto enthusiast Brad Mills, the answer is simple – USDT dropped because someone attacked the peg to profit.

“There’s no real risk of USDT having a sustained depeg because of these attacks. During extreme events (Celsius, Luna, FTX) mercenaries manipulate the fungibility of USDT through DeFi pools like curve.” Mills noted, adding that “by pulling out all of the other stablecoins (USDC, DAI) from the fungibility pool, they create an imbalance which guarantees big slippage for anyone trying to use the pool.”