USDT Has Been Depegging All Month: Kaiko

Kaiko believes that the USDT depegs through the month of August wasn’t bigger news because they haven’t been “as dramatic” as ones in the past in pure price terms.

USDT, the Tether issued U.S. dollar-pegged stablecoin, has been in a slight depeg for nearly all of August, according to research from crypto data firm Kaiko.

In a deep dive report exploring the severity of stablecoin depeg, Kaiko found that the most severe USDT depeg this year was on Aug. 7 at around 8 am UTC, when it hit 98% depeg severity and traded at a discount on “virtually every instrument.”

This followed a reported $500 million of total net selling on crypto exchanges Binance, Huobi and Uniswap.

USDT has been depegging all month. Why hasn’t anyone noticed?

In this week’s Deep Dive we propose a novel method of rating stablecoin depegs, check it out below ⬇️https://t.co/o8LuiTMSqW

— Kaiko (@KaikoData) August 31, 2023

Kaiko measures depeg severity using a stablecoin’s total volume to create a threshold for depegs that gets smaller as its trading volume increases.

“The rationale here is that as a stablecoin’s volume increases, so too does the value lost from peg deviations. Put simply, a stablecoin with $10bn monthly volume trading at $0.995 is much more significant than a stablecoin with $10mn monthly volume trading at that level,” wrote the Kaiko analyst. 

According to the analyst, USDT was likely more sensitive to depegging because of Tether’s redemption fee and minimum, combined with decreasing liquidity, which make depegs more frequent.

“USDT has a peg stability problem. Its redemption fee and minimum means it’s often rational for USDT holders to sell the token on the market rather than redeem it for USD with Tether,” said the analyst. 

While other stablecoins like TUSD, BUSD, DAI and USDC also saw minor depegs over the course of the year, the report concluded that they were relatively more stable and less sensitive to deviations from the U.S. dollar.

“The obvious solution is for Tether to remove its redemption fee and minimum. Tether reported an $850mn profit in Q2; removing the fee would not have a significant effect on profits unless the company believes that making redemptions cheaper would significantly decrease USDT’s supply,” the analyst said.