Tether (USDT), one of the most widely used stablecoins in the cryptocurrency market, recently experienced a marginal departure from its intended peg to the US dollar, causing a stir among market participants. The deviation occurred due to an imbalance in Curve’s 3pool, which resulted in Tether dropping to a low of $0.996, momentarily straying from its target value of $1. This slight depeg raised questions about the stability and reliability of Tether as a stablecoin.

The 3pool, which comprises three stablecoins—DAI, USDC, and USDT—holds a total value of $8.2 million. The current breakdown of the 3pool is as follows: DAI accounts for 28.92% of the pool’s value, USDC represents 15.38%, and USDT dominates with 55.70%. Ideally, each stablecoin in the pool should have a weight of 33.3%, ensuring a balanced composition. However, USDT’s weight has at times exceeded the recommended threshold, reaching as high as 74% in the past, creating an imbalance within the pool.

The departure of Tether from its peg and the imbalance in the 3pool raised concerns among market observers about the stability and trustworthiness of Tether as a stablecoin. Stablecoins are designed to maintain a 1:1 ratio with a specific fiat currency, such as the US dollar, providing stability and acting as a reliable store of value within the volatile cryptocurrency market. When a stablecoin deviates from its peg, it erodes confidence in its ability to fulfill its intended purpose.

It is worth noting that other stablecoins have also faced depegging issues in the past. USDC, another major stablecoin, experienced a slight depeg but managed to recover its stability. However, the same cannot be said for UST (TerraUSD), which encountered a depeg in May and struggled to regain its intended value. These incidents highlight the challenges and risks associated with maintaining a stablecoin’s peg, especially in the face of market imbalances and fluctuations.

The reserve holdings of Tether have long been a subject of debate and scrutiny within the cryptocurrency community. Tether has made several promises to disclose its reserves to provide transparency and instill confidence among users and market participants. However, these promises have yet to be fully realized, leading to ongoing skepticism and doubts about the actual assets backing Tether.

In the past, Tether was required to provide reports to the New York Attorney General (NYAG) as part of a settlement agreement. However, recent developments have shed some light on Tether’s reserves. CoinDesk, a prominent cryptocurrency news outlet, obtained access to Tether’s quarterly reports through a request made under the Freedom of Information Law (FOIL) of New York. This access to previously undisclosed information has raised hopes of gaining deeper insights into the composition and backing of Tether’s reserves.

While the specific details of Tether’s reserves have not yet been made public by CoinDesk, the timing of the depeg incident has raised suspicions among market observers. Paolo Ardoino, Tether’s Chief Technology Officer (CTO), took to Twitter to address the matter, characterizing it as an attack on the company and asserting Tether’s readiness to redeem any amount. Lookonchain, a blockchain analytics platform, claimed that some large USDT holders were dumping their holdings in Curve’s 3pool, potentially contributing to the instability.

Tether’s lack of transparent disclosure regarding its reserves has been a point of contention and skepticism within the cryptocurrency community for some time. Market participants and users of stablecoins have expressed the need for greater transparency and assurance that the stablecoins they rely on are indeed fully backed by sufficient reserves. The release of Tether’s quarterly reports through the FOIL request presents an opportunity to gain deeper insights into the assets backing Tether and address the concerns surrounding its stability and transparency.

Tether, in response to the situation, emphasized its commitment to transparency, while also stating that the information from the reports is now considered less relevant. The published reports cover the period up until the middle of 2021, and Tether highlighted that since the preparation of those reports, it has reduced its portfolio of secured loans and lowered its commercial paper reserves to zero. However, the cryptocurrency market is eagerly awaiting the publication of the reserve figures to gain a clearer understanding of Tether’s asset composition and to assess the extent of its backing.

As the market continues to closely monitor Tether’s stability and reserve disclosures, there is a collective interest in gaining a comprehensive understanding of the stablecoin’s reserves and their backing. The recent developments, including access to previously undisclosed reports, offer an opportunity to address the concerns and skepticism surrounding Tether’s peg and overall transparency. Ultimately, the transparency and trustworthiness of stablecoins are crucial for their wider adoption and for maintaining stability within the cryptocurrency ecosystem.