The most stable stablecoin? Tether (USDT) exchange rate

Launched back in October 2014, Tether was the first stablecoin in the cryptocurrency market to be pegged to the U.S. dollar exchange rate at a 1:1 ratio. Stablecoin allowed investors to protect themselves from the high volatility of cryptocurrencies without exiting into fiat, which was costly due to exchange and bank fees.

The early days of Tether (2014-2017)

Tether was initially released in October 2014 on the Bitcoin blockchain using the Omni Layer protocol. The tokens themselves were named Realcoin. However, the project team renamed the token to Tether as early as November.

In January 2015, the Tether stablecoin first appeared on a major exchange, Bitfinex. In February of the same year, the highest volatility in the Tether stablecoin's history was observed due to insufficient liquidity and large trading volumes: first, the USDT exchange rate rose to $1.21, an all-time high (ATH) as of September 2024, and then fell to $0.60, an all-time low.

After this incident, the USDT exchange rate remained stable and never lost its peg to the U.S. dollar until April 2017, but rate hikes occurred more than once.

Crypto boom and protracted correction period (2017-2020)

In April 2017, another significant decoupling of USDT from the U.S. dollar exchange rate (depeg) resulted in the stablecoin price dropping to $0.91 and recovering for about a month. During this period, bitcoin and many altcoin quotes began to skyrocket, so most likely, the loss of USDT's parity with the U.S. dollar is directly related to the sharply increased volume of stablecoin sales.

In September 2017, Tether appeared as an ERC-20 token on the Ethereum blockchain, and then gradually, USDT smart contracts were deployed in dozens of other networks, such as:

• BNB Smart Chain,
• Tron,
• Solana,
• Avalanche,
• Polygon,
• Arbitrum,
• Optimism and others.

Overall, 2017-2018 was the most volatile year for the Tether stablecoin. This is likely due to credit risks. For example, from January 2017 to December 2018, outstanding USDT tokens grew from 10 million to 2.8 billion. In particular, in October 2018, the price of Tether lost its peg to the U.S. dollar again and fell to $0.88 due to a large number of token sales on Bitfinex, when investors actively exchanged USDT for Bitcoin.

Another case of USDT rate decoupling from the U.S. dollar occurred in March 2020 after investors started actively buying bitcoin and other major cryptocurrencies after the stock market crash. Since then, there have been no significant deviations in USDT from the U.S. dollar exchange rate, except for instances on specific trading platforms.

For example, in February 2020, the USDT exchange rate on Binance, the largest cryptocurrency exchange, reached $4.99 at one point, and in March 2020, the stablecoin exchange rate on Bittrex reached $1.15. This happens when trading volumes far exceed available liquidity and traders sell large amounts through market orders, which can cause the price to deviate significantly up or down.

However, more notable depegs of the USDT exchange rate against the U.S. dollar have also been captured in different periods:

• in december 2017, the USDT stablecoin was trading at a rate of $10 on the EXMO exchange;
• in january 2019, the price of the Tether stablecoin fell to $0.001 on the OKCoin crypto exchange;
• the highest USDT rate was recorded in May 2019, when the stablecoin price reached $1,000 on the Kraken crypto exchange.

New bull cycle, correction, and resumption of growth (2021 - 2024)

Between 2021 and 2024, the USDT exchange rate did not show any significant deviations. It is worth noting that by May 2022, the capitalization of Tether stablecoin exceeded $80 billion. After a slight pullback, USDT capitalization returned to its peak values in May 2023 and has since continued to grow, constantly updating its absolute maximums.

This is probably the reason for the stability of the stablecoin exchange rate, as liquidity has grown significantly along with capitalization, allowing the USDT token to maintain parity with the U.S. dollar even with large trading volumes. Of course, there were occasional cases of exchange rate unbinding. Still, the deviations were infrequent and insignificant, so Tether has established itself as one of the most reliable stablecoins in the crypto market. USDT kept its peg even during periods when many others, including significant stablecoins, lost parity with fiat currencies amid massive buying or selling on the crypto market.

The last time a long deviation of USDT from the U.S. dollar was observed in August 2023. For almost the entire month, the price of Tether was below $1. Although the most significant deviation was only at the level of 0.2%, analysts note that for a token with such a large capitalization, this figure is quite substantial, even though trading volumes were small in that month.

However, as capitalization grew, USDT deviations from the U.S. dollar exchange rate became less and less. At the same time, the issuing company Tether provides monthly reports on reserves, according to which all tokens are 100% backed by USDT and a basket of various assets.