Tether Stablecoin Holds Steady Amidst US Banking Failures

Tether (USDT) was riding high over the last week, selling at a premium at a time when most stablecoins took a hit in value due to the ongoing US banking crisis. The popular stablecoin did dip below 0.90 USD just after Silicon Valley Bank (SVB) collapsed on 11 March but then swiftly bounced back with a vengeance, trading at slightly over a dollar over the following days. Conversely, rival stablecoins such as Dollar Coin (USDC), which is also pegged to the greenback, struggled to maintain their dollar parity. In this article, we’ll explore the reasons why.

Stablecoins with exposure to SVB suffer

The first factor to consider is the level of exposure to SVB. This was a strike against Circle, the US-based issuer of USDC. When it was revealed that Circle held part of its cash reserves at Silicon Valley Bank, USDC lost its peg and is still trading at just under a dollar. The same fate befell various other stablecoins, even decentralized tokens such as FRAX and DAI (which were partially or even largely collateralized by USDC). In fact, many of these rival stablecoins were recently being traded for USDT, showing a continued desire for stablecoins among investors, as well as a clear preference for one specific coin.

USDT stays strong and stable

USDT regained its peg and traded at a premium as investors decided to back the more established stablecoin. Data show that around $5 billion flowed into USDT during the past weeks, pumping Tether’s market capitalization past $77 billion as of the time of writing.

One reason analysts give for Tether’s strong performance is that USDT is perceived as having relatively low exposure to the US banking system. Tether is more popular in Asia and thus is not necessarily dependent on the number of dollars held in US banks. Tether’s more risk-averse portfolio management strategy, in which it holds a variety of assets to back the stablecoin’s value, may also be contributing to USDT’s safe-haven image during the current period of dollar instability.

Tether also has the advantage of being one of the original stablecoins and, as such, is seen as a tried-and-tested option that has demonstrated resilience during historic market challenges and stressors. All this considered, however, it’s worth noting that USDC did manage to leverage its other banking partners to recover its peg, even if it still lags slightly behind Tether.

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