- On-chain data reveals that Tether burned 3 billion USDT on Ethereum.
- Analysts assure there’s no reason to panic, as the event didn’t cause market instability or a significant shift in sentiment.
Tether, the world’s largest stablecoin issuer, just burned 3 billion of its USDT stablecoins on Tuesday. Whale Alert confirmed the activity from a verified Tether Treasury address on Ethereum (ETH) at around 3:00 PM (UTC).
The event has sparked speculation about the possible impact of the move on the market, as cryptocurrencies are once again at risk of liquidation exceeding half a billion dollars from the collapse of leveraged positions over the last 24 hours.
What Does the USDT Burn Mean?
Tether’s USDT burn is similar to what blockchains do: it reduces the circulating supply of its tokens by sending them to an unspendable blockchain address, permanently losing them. Crypto issuers typically do this to drive scarcity in their circulating token supply and potentially raise the value of the remaining ones if demand sustains or grows.
Stablecoins like the USDT do not yield the same effect, though. The token is pegged 1:1 to the value of US dollars, so regardless of its scarcity, its target price remains firmly at $1. That’s unless it loses its peg and collapses due to reserve backing, arbitrage, and market sentiment issues.
No Need to Panic in Tether’s Recent 3 Billion USDT Burn
Tether has yet to address its recent massive USDT burn. Hence, the event sparked concern from several members of the crypto community, especially now that the Crypto Fear & Greed Index has dialed back from the 44 “Fear” range to 32 in the last 24 hours.
Looking back at the historical data Bitget compiled, similar large USDT burn events occurred during critical moments in the market. In April 2021, Tether burned 1.5 billion units of its stablecoin after excessive minting amid market peak speculation. Another was the 2 billion burn in July 2022, which coincided with the crypto credit crisis stemming from the insolvencies of major crypto exchanges.
The latest burn was 50% more than the July 22 event. It prompted some to wonder whether the market is under some level of stress.
However, Bitget claimed that the incident didn’t result in any stability concerns or significant shift in sentiment. The reaction signals the market’s confidence that it may only be due to Tether’s redemption policy. Other market observers claimed that supply contractions don’t necessarily mean market panic. Instead, it’s only a reflection of cooling demand.
Meanwhile, some suggested that it may be part of Tether’s efforts to keep its accounting clean by removing excess supply or unissued tokens from market circulation. It mirrors the exact reason for the company’s token burn in April 2021.
Others noted that the 3 billion USDT burn serves as a real-time stress test for Tether. It may indicate that it recently processed around $3 billion in redemptions, suggesting it had liquidity to settle a large set of transactions.
