Original author | Riyad Carey

Original translation | Odaily Planet Daily Nan Zhi

Overview

What is a depeg? In its simplest form, a depeg is when a stablecoin trades at a discount to the fiat currency it represents.

However, in the strictest and most practical terms, this definition does not fully apply; USD stablecoins or trading at a discount of 1/10, 1/100, or 1/1000 of the USD are all off-peg. If we say that TUSD at a price of $0.9998 is off-peg, then the term starts to lose its meaning.

Therefore, the authors propose a metric that uses the total trading volume of stablecoins to create a depegging threshold, weighted based on the trading volume of different trading platforms.

Based on this metric, the worst depegging among the top five stablecoins this year was USDC and DAI on March 12, TUSD on June 12, and USDT on August 7. Notably, USDT was slightly depegged for most of August.

Unanchoring threshold

The authors use the global trading volume of stablecoins to establish a depegging threshold that becomes smaller as the trading volume of stablecoins increases. In short, a stablecoin with a monthly trading volume of $10 billion is much more serious if it is traded at $0.995 than a stablecoin with a monthly trading volume of $10 million is traded at the same price. The final formula is as follows:

Applied to the five stablecoins in question, we obtain the following results:

  • TUSD’s depegging threshold narrowed rapidly in February-March as Binance eliminated BTC-TUSD transaction fees to promote the stablecoin.

  • BUSD’s threshold was expanded from 0.998 to 0.9955 as its trading volume declined.

  • The USDT threshold has always been the lowest, at 0.998 in August.

Volume measurement method

The chart below shows stablecoin-to-stablecoin volume so far this year, with colors representing different exchanges. DAI has the lowest volume at just $17 billion, with nearly $13 billion coming from Uniswap V3 and Curve. TUSD is next with just $24.5 billion in volume, with $23.5 billion coming from a single pair: TUSD-USDT on Binance.

BUSD has $97.5 billion in volume and is also highly concentrated, with $93 billion coming from the BUSD-USDT pair on Binance. USDC and USDT are quite different from other stablecoins, with USDC having $150 billion in volume across 48 exchanges, while USDT has $320 billion in volume across 75 exchanges.

in conclusion

  • Looking at the situation in early August on an hourly basis, USDT experienced a major depegging of 98% on August 7, which means that USDT is trading at a discount on almost every trading platform. A total of $500 million in USDT was sold on Binance, Huobi, and Uniswap, which the author believes is due to the inflexibility caused by Tether's redemption fees and minimum limits.

  • On a daily basis, the most severe depegging since May was the TUSD depegging on June 7, reaching almost 60%, with most of the time being traded at a discount on Binance.

TUSD, DAI, and BUSD are all relatively stable, with TUSD benefiting from the fact that its liquidity is almost entirely concentrated on the same trading platform;

USDC experienced a depegging of more than 10% in March, and has not exceeded 1% since then, with increasing stability;

USDT has stability issues. Its redemption fees and minimum limits mean that for USDT holders, selling the token on the market is preferable to exchanging Tether for USD. As liquidity dwindles, the market can no longer absorb large-scale USDT sales. Although the degree of de-anchoring in terms of price is low, its continued discounting phenomenon is worrying. The most immediate solution would be for Tether to remove its redemption fees and minimum limits. Tether reported profits of $850 million in the second quarter, and removing fees would have little significant impact on profits unless the company believes that lowering redemption costs will significantly reduce the supply of USDT.

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