Crypto Markets Are Heavily Dependent On Stablecoins Lacking Transparency, TrueUSD TUSD Poses Risk, Says Kaiko

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Centralized stablecoins dominate cryptocurrency trading, but recent turmoil has shown that markets are heavily reliant on stablecoins that lack transparency over their reserves, with TrueUSD posing the greatest risk, the market research firm said. Kaiko digital assets in a report.

As of Thursday, 74% of all transactions on centralized crypto exchanges involved stablecoins, while only 23% incorporated fiat currencies, according to data from Kaiko.

The trading volume of TrueUSD (TUSD), which has recently come under intense scrutiny due to the implosion of its banking partner Prime Trust and disruptions in its reserve reporting, has increased significantly to 19 %, against less than 1% in three months. Tethers USDT, which was partially backed by Chinese commercial papers in the past, claimed a 70% volume share.

Stable cryptocurrencies that peg their price to another asset, primarily the US dollar, have become a key plumbing fixture for the crypto ecosystem, facilitating commerce and the integration of government-issued fiat currencies. The asset class has a combined market capitalization of $128 billion, according to CCData.

The largest stablecoins have all gone through turbulent times over the past few months. In February, New York State regulators ordered Paxos to stop minting Binance USD (BUSD), the third-largest stablecoin at the time. Next month, the collapse of Silicon Valley Bank (SVB) temporarily froze a significant portion of USDC’s cash reserves, which affected the stablecoin Makers DAI. Last month, USDT came under selling pressure in a key liquidity pool for stablecoins, spooking traders, and TUSD weathered its custodial partner’s implosion.

These volatile periods have highlighted how crypto markets are exposed to the risks and vulnerabilities of stablecoins, noted Clara Medalie, head of research at Kaiko.

Crypto markets rely heavily on centralized stablecoins which often lack transparency around reserves, she said.

While Circle has made huge efforts to improve the transparency of USDC (and even Tether has made efforts over the past year), the relatively unknown TUSD today presents the greatest risk, offering the least information about its reserves or corporate structure.

The $3 billion TUSD is a dollar-pegged stablecoin that was acquired by little-known Asian conglomerate Techteryx in late 2020, repossessing its intellectual property. The company has denied reports that it is linked to Tron founder Justin Sun, who is being sued by the U.S. Securities and Exchange Commission (SEC) for market manipulation.

The rapid rise in tokens followed Binances’ decision to promote the stablecoin with fee-free trading on its platform after the BUSD crackdown earlier this year.

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