After the collapse of Terra’s UST, the stablecoin sector has experienced turbulence. One of the most widely used stablecoins, Tether (USDT), briefly lost its dollar peg amid the market unrest. In a recent development, Tether announced via Twitter that it would coordinate a chain swap to move USDT tokens from the Tron blockchain to Ethereum and Avalanche.
According to the announcement, Tether planned to transfer $1 billion USDT from Tron to Ethereum and another $20 million USDT from Tron to Avalanche through a coordinated chain swap with a third party. Tether emphasized that this operation would not change the total supply of USDT.
In few minutes Tether will coordinate with a 3rd party to perform a chain swap, converting from Tron TRC20 to Ethereum ERC20, for 1B USDt and from Tron TRC20 to Avalanche, for 20M USDt. The #tether total supply will not change during this process.
— Tether (@Tether_to) May 12, 2022
The announcement came at a time of heightened concern following the recent depegging and collapse of TerraUSD (UST), which also triggered the crash of Terra’s native token (LUNA). During this period, USDT displayed short-term price volatility, trading below $0.99 on several cryptocurrency exchanges—an unusual move for a dollar-pegged stablecoin.
USDT is the most heavily traded stablecoin, so any sign of instability drew significant attention from investors and traders.
USDT differs from algorithmic stablecoins like UST
Tether’s Chief Technology Officer, Paolo Ardoino, reassured the market that USDT is not an algorithmic stablecoin like UST. He explained that Tether maintains a conservative, liquid portfolio of assets backing USDT, which includes cash and cash equivalents.
“Tether has a strong, conservative, and liquid portfolio consisting of cash and cash equivalents,” Ardoino said, noting that the reserves include treasury bills, money market funds, and commercial paper holdings.
Tether’s reserve composition—treasury bills, commercial paper, and money market funds—is intended to provide liquidity and stability for USDT.
Ardoino also observed that while some market participants reacted with fear to the recent disruptions, others took the situation as a trading opportunity. Some traders bought USDT below $1 on certain exchanges and then redeemed or traded it at or above $1 on platforms like Bitfinex and Tether’s own services.