Tether Stability Made It Safest Stablecoin Bet Amid US Banking Crisis, Analysts Say

The often-controversial bond coin (USDT) emerged as the best option for traders looking for a stable safe haven earlier this month following a series of banking problems in the US

The USD coin (USDC) fell below 90 cents on March 11 after the collapse of Silicon Valley Bank (SVB) revealed that some of the industry’s major players had exposure to the bank.

Those players included US-based stablecoin issuer Circle, which held a portion of the USDC stablecoin’s cash reserves at Silicon Valley Bank as of January 17, according to the firm’s latest filing.

Decentralized stablecoins also took a hit, with frax and dai — both backed by a basket of tokens — dropping cents on their intended dollar pegs.

Tether held its fort but even traded at a premium in the following days. This came despite a lingering perception among some market participants about the token’s opaque asset backing and concerns about parent company Tether Global.

Data further shows inflows of at least $5 billion into Tether in recent weeks, bringing its market cap to over $77 billion as of Wednesday.

Part of that could probably be due to the supposedly low exposure to the US banking system, some say.

“Tether has no exposure to SVB as its popularity lies more in the Asian region, meaning USDT does not rely on dollars being held in US banks, making it one of the safest stablecoins to swing to currently,” said François Cluzeau, head of trading at Flowdesk, in a message to CoinDesk.

“We have seen a lot of USDC and DAI being traded for USDT, which has kept USDT afloat,” Cluzeau wrote.

The systematic risks of USDC affected dai stablecoins, which further strengthens tether’s thesis of having a range of assets to back its stablecoins, said Mitya Argunov, product manager at P2P.org.

“Tether’s performance during the crisis is largely due to its lack of direct exposure to SVB – it just didn’t have deposits there. Other major stablecoins like DAI were also indirectly exposed and de-pegged because they are actually largely backed by the USDC.” said Argunov.

“But the flight to Tether as a safe haven should also be seen as confidence in Tether’s portfolio risk management strategy – which minimizes the duration risk, i.e. how SVB should have operated,” Argunov added.

Meanwhile, some developers remain cautious in the long term.

“Looking at Tether’s history, it has experienced recent R&D and redemption issues and has remained stable amid today’s market turmoil,” Danny Chong, co-founder of Tranchess, said in a note to CoinDesk.

“Tether’s ability to maintain stability amid recent challenges suggests it may have a chance for long-term success,” Chong said, adding that further stress tests would show whether it remained “resilient in the long run.”

The USDC also demonstrated the effectiveness and resilience of its hedging strategy through cooperation with its banking partners when it quickly restored its link the following week, Chong said.

However, the demand for stablecoins is unabated.

“The speed with which Circle’s USDC is relinking following their announcement of a recovery plan is further confirmation of how the market values ​​the potential of stablecoin businesses,” Chong noted.