Tether is recapturing almost all of the market capitalization that was lost during the crypto meltdown

PORTLAND – Tether’s stablecoin is on the verge of recovering all the market cap lost in the wake of the collapse of algorithmic rival TerraUSD less than a year ago.

The stablecoin operator had assets totaling about $US81.4 billion ($108.6 billion) backing its USDT token as of April 21, according to data tracker CoinMarketCap. The amount peaked at around $83 billion last May, when the dissolution of Terra prompted investors to dump cryptocurrencies across the board.

Tether’s assets had fallen almost 20 percent in the second quarter of last year.

The recovery is a testament to the dominant role that Tether plays in crypto as a means of conducting transactions and storing value. USDT, the world’s most traded crypto-asset, aims to maintain a one-to-one redemption with the US dollar by relying on a reserve of cash and cash equivalents.

It briefly fell below $1 when TerraUSD imploded, and again in November when the FTX exchange failed. The quality of the assets used by Tether for this reserve has been questioned in the past, and regulators globally have turned the spotlight on stablecoin issuers.

Tether has benefited this year from the banking turmoil that has weighed on rivals such as Circle’s USD Coin (USDC), as well as the rally that has sent the market’s bellwether Bitcoin up around 70 percent.

The amount of Tether in circulation typically rises during rallies and flattens or declines modestly in bear markets, according to Alex Thorn, head of research at Galaxy Digital.

Large investors, often referred to as whales, have also exited profitable trades and parking revenue in Tether, said Henry Elder, head of decentralized finance at Wave Digital Assets.

Meanwhile, the evolving regulatory environment in the US is pushing more traders offshore. Tether is based in the British Virgin Islands. Circle, which has seen a roughly 30 percent decline in USDC holdings this year, is operated out of Boston.

“We are seeing a wholesale shift from the USDC to other, less US-centric stablecoins,” Elder said. “This will continue to play out as long as the US remains irrationally hostile to crypto in general and stablecoins in particular.”

A House hearing last week focused on stablecoins indicated a deep rift between Republican and Democratic lawmakers. This probably bodes poorly for the legislation.

At the same time, the US Securities and Exchange Commission (SEC) and state regulators have stepped up enforcement actions. Paxos Trust stopped issuing its Binance-branded BUSD stablecoin following a backlash from New York authorities and the SEC.

BUSD’s market cap is down about 60 percent since the beginning of the year, according to CoinMarketCap. The SEC also declared UST, the stablecoin whose de-pegging triggered the failure of the Terra-Luna ecosystem, an unregistered security.

“Tether had been a big benefactor to the enforcement approach in the US, as it not only appears to be insulated from the SEC, but also has not been subject to any major incidents recently, which has inspired confidence among investors,” said Conor Ryder. a research analyst at Kaiko.