Which stablecoins were really “stable” during this week’s sudden drop in Bitcoin prices?

A heavy sell-off in the cryptocurrency market on Tuesday – which saw major tokens like Bitcoin (BTC), Ether (ETH), Cardano (ADA) and Solana (SOL) falling double-digit percentages – created a place for stablecoins to prove their worth.

Fixed-price cryptocurrencies offered traders temporary protection from notorious price volatility of cryptocurrencies. They did this by holding almost their one-dollar pair and providing ample liquidity to traders looking for a safety net during the market downturn.

The blockchain analysis service CryptoQuant reported dramatic increases in stablecoin transfers as the market cap of cryptocurrencies fell from $ 2.38 to $ 2.103 trillion on Tuesday..

Which stablecoins were really “stable” during this week’s sudden drop in Bitcoin prices?
Which stablecoins were really “stable” during this week’s sudden drop in Bitcoin prices?

For example, The highest-volume stablecoin, Tether, processed transactions valued at $ 10.51 billion on Tuesday, up from $ 4.02 billion on Monday..

The average of all stablecoin transfers. Source: CryptoQuant

Likewise the second largest stablecoinUSDC, backed by Circle, posted $ 5.728 billion in transfers on Tuesday, up from $ 3.27 billion in the previous session, an increase of 74%.

At the same time, the net supply of stablecoins in circulation remained relatively inactive at around $ 67 billion, showing adequate liquidity against demand, even given the brutal decline in the cryptocurrency market. As a result, many of the big stablecoins kept their 1: 1 peg to the dollar despite small price drifts.

Centralized stablecoins are more reliable

Among the top 10 stablecoins that had a minimal mean deviation from their parity of one dollar are six centralized projects, two mixed and two algorithmic.

USDC demand pushed its average valuation of $ 0.00196 above a dollar, closely followed by Paxos (PAX)that was trading $ 0.00203 above the same parity.

The top 10 stablecoins were ranked according to their average deviation from the dollar. Source: Larry Engineer’s stablecoin tracker

In the same way, The native stablecoin BUSD from Binance and the DAI from MakerDAO get their stability through a dynamic system of Collateralized Debt Positions (CDP), autonomous feedback mechanisms, and a variety of incentive structures for users increased $ 0.00244 from dollar parity.

The greatest demand for tether across the entire spectrum of cryptocurrencies It also increased its average deviation by $ 0.00244.

In the meantime, TrustToken’s TUSD, Stable Universal’s HUSD, and Terra’s UST were all off $ 0.00249 to $ 0.00385 from their dollar value. FRAX and FEI broke their dollar valuation by jumping above $ 0.00044 and $ 0.00474, respectively.

The data snapshot was taken 24 hours after the cryptocurrency market crashed on September 7th.

Is the stablecoins collapse good for Bitcoin?

But the potential risks of stablecoins have also drawn the attention of high-ranking U.S. officials.like Treasury Secretary Janet Yellen and Boston Federal Reserve Chairman Eric Rosengren.

In July, Yellen highlighted “the need to act quickly to ensure that the United States is in an appropriate regulatory environment”., in a meeting with the chiefs of the Federal Reserve, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation.

For his part, Rosengren identified Tether as a potential financial stability challenge.

In July, a document released by Fitch Ratings also stated that Secured stablecoins could trigger contagion in the credit market in the short term. Some excerpts say:

“A sudden massive rescue from [tether] could affect the stability of the credit markets in the short term […] especially when coupled with broader redemptions of other stablecoins that hold reserves in similar assets. “

But, What could a collapse of the stablecoin market mean for bitcoin and other similar digital assets? Mike McGlone, chief commodities strategist at Bloomberg Intelligence, said Bitcoin in particular would benefit.

“If the entire market collapses, there will only be one safe store of value: Bitcoin.”

To learn more about the potential risk of stablecoins, watch the latest Cointelegraph video report.

The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph.com. All investments and operations involve risk, so do your own research when making a decision.

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