Since the beginning of the crypto crisis, $7.6 billion in'stablecoin' tether has been redeemed.
As its supporters prepare to relaunch, figures show that the firm has spent more than its total capital on hand.
Since the cryptocurrency crisis erupted last week, digital investors have withdrew funds in the "stablecoin" tether valued $7.6 billion (£6.2 billion), implying the corporation has paid out nearly twice its total cash reserves to frightened depositors.
Stablecoins are designed to have a stable value that corresponds to a real-world asset, usually $1 per token. However, trust in the system was shaken last Tuesday when another major participant, terra, violated its dollar peg. This has fueled a bigger sell-off in the crypto industry, which depends heavily on stablecoins for financial engineering.
Tether, the third largest cryptocurrency by "market cap," faced a brief crisis on Thursday when its value went from $1 to 95 as investors thought it might collapse like its stablecoin terra. However, the token, which is owned by a private corporation with close ties to the crypto exchange Bitfinex, has now essentially restored its dollar peg by honouring a pledge to allow depositors to always withdraw $1 for every tether they send back to the company.
The firm only enables direct withdrawals of at least $100,000 per request, and redemptions are subject to a 0.1 percent fee. Anyone possessing less than that link can only convert their money into dollars by finding someone to buy it from them — a gap that fueled the temporary drop in value.
Despite the limitations, public blockchain records show that $7.6 billion in tether has been redistributed in this manner since Thursday. Tether had nearly twice as much cash in its reserves at the end of last year, according to records released on its website.
The majority of its remaining reserves are kept in "cash-like" assets, the majority of which are $35 billion in US government debt and $25 billion in corporate bonds. However, the firm has declined to reveal any further information on the investments, with its chief technology officer, Paolo Ardoino, telling the Financial Times, "We don't want to expose our secret sauce."
Tether's capacity to honour all redemptions has long been questioned. The firm originally claimed that their money was backed by "US dollars," which the New York attorney general called a "lie" in 2021. It now just states that its currency is "backed 100 percent by Tether's reserves."
Terra, on the other hand, was supported by a sophisticated system that needed the value of a sister coin, luna, to grow regularly in order to maintain the dollar peg. When the meltdown occurred last week, the system entered a "death spiral," automatically generating additional luna, which further depressed the price, until luna lost 99.9995 percent of its value in a matter of days and terra was left languishing at $0.11.
Do Kwon, the charismatic inventor of the Terra project, has stated his desire to revive the currency. In a proposal made to the project's message board on Friday, he proposed erasing all ownership of luna and dispersing 1 billion new tokens, with the majority going to individuals who possess the stablecoin or held luna before to last week's fall.
"It is a difficult balance – and there are no easy answers in spreading value across the network," stated Kwon. "However, value must be dispersed in order for the ecosystem to thrive, which it will not do in its current condition."
Kwon is also being questioned about how the enormous quantities of bitcoin acquired by his initiative to back terra were used. According to a breakdown provided by the organisation, it sold more than 80,000 bitcoins worth more than $2.4 billion to unknown parties in return for terra valued at $1 — at a time when the currency's market price was less than $75.
The concerns about stablecoins, along with a widespread drop in tech equities and the larger US downturn, have triggered a wider crisis of trust in the crypto sector. Bitcoin and ethereum, the two largest cryptocurrencies, have fallen more than 10% in the previous seven days, with ethereum falling 17% to less than $2,000. Smaller currencies have always been more volatile, with dogecoin plummeting 26% in a week.
Even some of the most vociferous supporters of digital currencies are already questioning the sector's claims. In an interview with the Financial Times, Sam Bankman-Fried, the creator of the crypto exchange FTX, stated that bitcoin has no future as a payments network due to the inherent inefficiencies of the blockchain, the public digital register that records its transactions. Instead, he contended, it could only serve as a gold-like long-term value store.