By Sam Boughedda
In a note Tuesday, Morgan Stanley analyst Sheena Shah wrote that crypto price weakness, the failure of a dollar stablecoin, and the reduction in leverage DeFi are resulting in the crypto equivalent of quantitative tightening (QT).
The analyst posed questions such as who redeemed the USD, the largest stablecoin, which has seen $10bn of redemptions recently. Shah also questioned whether Tether has sufficient liquid reserves to keep the USD peg.
"Investors are redeeming USDT at a record pace, $10.6bn in the past month, without other stablecoin issuance rising. This is the crypto equivalent of quantitative tightening, as total stablecoin market cap falls, and liquidity on decentralised exchanges and leverage on lending platforms falls even faster," said Shah.
"Of the $10bn redeemed, the majority ($5.9bn) was on the TRON blockchain and surprisingly much less on Ethereum. Binance, the crypto exchange, is the largest known owner of USDT ($21bn), controlling 49% of all USDT issued on TRON," the analyst added.
While Shah says the systemic spillover risks of crypto weakness to the fiat banking system currently appear limited, as the leveraged crypto companies have generally borrowed from each other, the analyst warned that if USDT materially falls below its $1 peg, it would have a more considerable negative spillover into crypto and risk markets.