Which stablecoins were actually “stable” during the sudden drop in Bitcoin prices this week?

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A massive sell-off in the cryptocurrency market on Tuesday that saw top tokens like Bitcoin (BTC), Ether (ETH), Cardano (ADA) and Solana (SOL) drop by double-digit percentages created a place for coins stable to prove their worth.

Fixed-price cryptocurrencies offered temporary protection to traders against notorious crypto price volatility. They did this by maintaining almost their parity at one dollar and providing sufficient liquidity to traders who were looking for a safety net during the market downturn.

Blockchain analysis service CryptoQuant reported dramatic spikes in stablecoin transfers as the cryptocurrency’s market cap rose from $ 2.38 trillion to $ 2.103 trillion on Tuesday.

For example, Tether, the largest stablecoin by volume, processed $ 10.51 billion in transactions on Tuesday, up from $ 4.02 billion on Monday.

The average of all stablecoin transfers. Source: CryptoQuant

Likewise, the second-largest USDC stablecoin, backed by Circle, reported $ 5.728 billion in transfers on Tuesday from $ 3.27 billion in the previous session, recording a peak of 74%.

At the same time, the net supply of stablecoins in circulation has remained relatively inactive, around $ 67 billion, showing adequate liquidity relative to demand, even in the face of a sharp decline in the crypto market. As a result, many leading stablecoins have maintained their 1: 1 dollar peg despite recording minor price drifts.

More reliable centralized stablecoin

Among the top 10 stablecoins that showed a minimal average deviation from their dollar peg, there were six centralized projects, two mixed and two algorithmic.

USDC demand pushed its average valuation to around $ 0.00196 above a dollar, followed closely by Paxos (PAX), which traded at $ 0.00203 above the same. parity.

Top 10 stable coins ranked by their average deviation from the US dollar. Source: Larry Engineer Stable Coin Tracker

Likewise, Binance Exchange’s native BUSD stablecoin and MakerDAO’s DAI maintain stability through a dynamic system of secured debt positions (CDP), stand-alone feedback mechanisms, and a variety of user incentive structures, have increased by $ 0.00244 from its dollar peg.

Wider demand for Tether on the cryptocurrency spectrum also increased its average spread by $ 0.00244.

Related: Tether Promises Audit In Months As Paxos Says USDT Not Real Stablecoin

Meanwhile, TrustToken’s TUSD, Stable Universal’s HUSD, and Terra’s UST drifted $ 0.00249 to $ 0.00385 from their dollar valuation. FRAX and FEI decoupled from their dollar pegs by jumping $ 0.00404 and $ 0.00474 above, respectively.

The data snapshot was taken 24 hours after the September 7 crypto market crash.

Stablecoin Collapses Good For Bitcoin?

But the potential risks of stablecoins have also caught the attention of senior U.S. officials, including Treasury Secretary Janet Yellen and Boston Federal Reserve Chairman Eric Rosengren.

In July, Yellen underscored the need for swift action to ensure an appropriate U.S. regulatory framework is in place, in a meeting with executives from the Federal Reserve, Securities and Exchange Commission, Commodity Futures Trading Commission, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

Related: Steady Coin Growth Could Affect Credit Markets, Rating Agency Warns

Meanwhile, Rosengren called Tether a potential challenge to financial stability.

In July, a document released by Fitch Ratings also noted that secured stablecoins could trigger contagion in the credit market in the short term. Extracts:

“A sudden massive buyout of [tether] could affect the stability of short-term credit markets […] especially if paired with larger buybacks of other stablecoins that hold reserves in similar assets. “

But what could a collapse in the stablecoins market mean for Bitcoin and similar digital assets? Mike McGlone, senior commodities strategist at Bloomberg Intelligence, said this would benefit Bitcoin in particular.

“If the whole market collapses, there is only one safe store of value left: Bitcoin.”

To learn more about the potential risk of stable coins, check out Cointelegraph’s latest video report.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move comes with risk, you should do your own research before making a decision.

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