- Tether’s USDT stablecoin has dropped below $1 again after Celsius froze its customers’ accounts.
- USDT also lost its dollar peg in May after Terra’s algorithmic stablecoin crashed to zero.
- Analysts have warned that a Tether collapse would be crypto’s ‘Lehman Brothers moment’.
Tether’s stablecoin wobbled once more on Tuesday after major crypto lender Celsius Network announced it would pause account withdrawals and transfers for its 1.7 million customers.
USDT, which is supposed to be pegged to a fixed value of $1, slipped as low as $0.9975 and was hovering at around $0.9988 by Tuesday morning.
Unlike other tokens, so-called stablecoins derive their value from being pegged to another asset like a fiat currency or precious metal. This is supposed to make them less volatile, giving investors somewhere to park their cash during a market downturn.
But this isn’t the first time that USDT has failed to remain at the $1 level.
Last month, as Terra’s UST stablecoin and its sister token luna both crashed, USDT slipped as low as $0.9959, according to CoinMarketCap. One analyst warned that a Tether collapse could end up being crypto’s ‘Lehman Brothers moment‘.
“Some have called [Terra’s collapse] a ‘Lehman Brothers’ moment due to the contagion this may cause,” GlobalBlock analyst Marcus Sotiriou told Insider in May. “However, I am optimistic that UST’s fall would not be that catastrophic — a collapse of USDT would be though.”
Lehman Brothers filed for bankruptcy during the 2008 financial crisis due to its heavy position in subprime mortgages, which left it exposed to
bad credit
. Its collapse triggered panic across markets, with the S&P 500 falling 3.4% in a single day.
“Tether’s stablecoin is helping to fuel the bitcoin bubble,” Sussex University finance professor Carol Alexander told Insider. “If its dollar reserves prove to be candyfloss, there will be a knock-on effect on bitcoin and other cryptos.”
Tether was also an initial investor in Celsius, which cited “extreme market conditions” when it paused withdrawals, swaps and transfers Monday. The lender, which once managed around $11.8 billion worth of assets, froze customers’ accounts after bitcoin plummeted 18.7% over the weekend.
Celsius’ CEO Alex Mashinsky also previously told the Financial Times that Tether issued USDT to Celsius in exchange for bitcoin, ethereum, and other cryptocurrencies as part of a lending agreement.
“The recent events impacting the Celsius lending platform and its native token cel are an unfortunate result of market
volatility
and extreme market conditions,” Tether said in a statement. “While Tether’s investment portfolio does include an investment in the company, representing a minimal part of our shareholders equity, there is no correlation between this investment and our own reserves or stability.”
Three other dollar-pegged stablecoins – Neutrino USD, Tron’s USDD, and Fei USD – also slipped away from $1 after Celsius’ announcement. Neutrino USD plummeted as low as $0.9529, according to CoinMarketCap.
