Untethering: Minting Wallet Revokes 500M Tether (USDT)

The Tether treasury is offloading its bloated wallet to the minting address, where 500 million tokens were revoked on October 24.

The Tether company appears to be serious about decreasing the supply of stablecoins following a period of volatility that saw the USDT token failing to maintain its dollar peg. After withdrawing more than 966 million tokens from circulation, the treasury sent the USDT back to the minting wallet. In this transaction, 500 million USDT were destroyed.

On October 24, Tether tweeted it was “redeeming” 500 million USDT by destroying the coins. Since all USDT are allegedly backed by dollars in a bank, the Tether company should, in theory, have freed up $500 million:

https://twitter.com/Tether_to/status/1055139613000507392

However, Tether lists its assets as $2 billion, which matches the new, lower circulation. In the past weeks, the USDT held in the treasury were not counted toward the liabilities. Skeptics see the latest coin burn as a sign that the tokens are not actually backed by dollars. This suspicion is reinforced by the lack of a known bank servicing Tether. Additionally, the official Tether website does not offer redemptions for US dollars, only withdrawals.

The way USDT are leaving the crypto markets follows a predictable pattern. Traders sell their USDT, buy Bitcoin (BTC), and then withdraw the coins. This means the Bitfinex USDT wallet keeps getting refilled, just like it happened this week, when it held only 9 million USDT during the weekend. In a few days, the number had ballooned to more than 48 million. In theory, the exchange could send back the tokens to the treasury, with the possibility of more token burns.

https://twitter.com/WeissRatings/status/1055198547614879744

Even with the severe intervention cutting USDT liquidity in the manner of a central bank, the token remains important in the crypto ecosystem. The share of USDT pairs declined only slightly to 18% of all trades from peaks above 21%. With Bitcoin-paired trading, the share is around 43%, down from nearly 60% in the past weeks.

The removal of coins from circulation may prevent a more catastrophic scenario. Still, the presence of USDT in the crypto ecosystem has done its bit for achieving today’s prices. New stablecoins are cropping up, ensuring there are no token issues without dollar backing. However, USDT proliferated during the times of the greatest enthusiasm for Bitcoin and digital assets and boosted market liquidity to record volumes.

Now, the Tether supply is shrinking and the coins in circulation are limited. In theory, the Tether treasury can still add liquidity, but with low trust in Tether, demand for this type of stablecoin has also diminished.