• The top four Stablecoins by market capitalisation shrunk in May

• Tether's circulating supply plunged from a record $84 billion to around $73 billion

• Regulators raised concerns after the collapse of the 3rd largest Stablecoin UST

• As Tether faced outflows rival USD Coin, has drawn a 5 per cent increase in funds during the same period
  

Traders cash out $10bn as regulators intensify concerns about the assets that underpin Global Stablecoins.

Tether, the world’s largest Stablecoin, has seen its circulating supply plunge from a record $84.2 billion on May 11 to around $73.3 billion as of Monday amid heightened regulatory scrutiny over Stablecoins.

Tether, which is designed to maintain a one-to-one peg with the dollar temporarily dipped as low as 95 cents on May 12 after another type of Stablecoin, TerraUSD plunged well below $1. That resulted in a sell-off in UST’s associated Luna token, which in turn wiped out more than $40 billion in holders’ wealth.

Unlike Tether, UST wasn’t backed by fiat currency held in a reserve. Instead, it relied on some complex engineering where price stability was maintained through the destruction and creation of UST and its sister token luna.

The fallout from the collapse of Terra, the blockchain behind UST and Luna, sent shockwaves through the crypto market drawning attention to other Stablecoins.

Regulators and economists have long questioned whether Tether has enough assets in its reserves to justify its Stablecoin’s purported peg to the dollar.

Fabio Panetta, an executive board member at the European Central Bank, said in a speech on Monday.

 “There is no guarantee that Stablecoins can be redeemed at par at any time — just last week the world’s biggest stablecoin temporarily lost its peg to the dollar,”

Panetta added that stablecoin holders could not claim deposit insurance to recoup any losses and operators were not able to access bank standing facilities, leaving the tokens vulnerable to runs. He pointed to last week’s collapse in TerraUSD, once a top-five stablecoin, as an example of this risk.

“It is an illusion to believe that private instruments can act as money when they cannot be converted at par into public money at all times,” the ECB official added.

Unlike Denmark based e-Money.com's suite of European Stablecoins that are 100% collateralised with actual bank deposits and government bonds held at commercial banks, UST wasn’t backed by fiat currency held in a reserve. Instead, it relied on some complex engineering where price stability was maintained through the destruction and creation of UST and its sister token luna. Investors were lured in by the promise of 20% savings yields from Anchor, Terra’s flagship lending platform, a rate many investors said was unsustainable.



Tether recently claimed their Stablecoins are backed one-to-one by dollars in a bank account, but subsequently revealed it was using other assets including commercial paper — short-term corporate debt — and even digital tokens as collateral after a settlement with the New York attorney general.

Last week, Tether said it reduced the amount of commercial paper it owns and increased its holdings of U.S. Treasury bills. For the first time, the British Virgin Islands-based firm said it also holds some foreign government debt. Tether declined to comment further on the source of its funds, but said it is pursuing a more thorough audit of its reserves.

USDC has grown 20% with $10.6 billion more tokens in circulation. USDT has shed about $4.1 billion, a 5% reduction.

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