USDT Stability Analysis: Improvement of Reserve Quality and Liquidity Testing

Recently, concerns about the stability of USDT have heated up again. To assess whether there is a risk of collapse for USDT, two key aspects need to be analyzed: the liquidity quality of asset reserves and the possibility of a large-scale redemption wave.

From the perspective of asset reserve quality, USDT has been striving to improve its composition. The proportion of commercial paper ( CP ) has been decreasing quarter by quarter, while the proportion of U.S. short-term Treasury bills ( T-Bill ) has been steadily increasing. It is estimated that by the second quarter of 2022, the proportion of T-Bill may have exceeded 60%. Furthermore, the quality of CP held by USDT is also improving, with the proportion of CP rated AAA and above reaching 99%.

In the past month, USDT has undergone a redemption pressure test of 17 billion USD, with its circulation decreasing by 20%. Especially during the market panic triggered by the UST collapse, 10 billion USD was redeemed in just a few days. This fully demonstrates USDT's excellent short-term liquidity capability.

As for whether a massive redemption wave like that of the 2008 money market funds could occur, the analysis suggests that the likelihood is low. First, USDT, as a long-established stablecoin in the industry, has deeply integrated into the crypto ecosystem. Many trading pair market makers, OTC channels, and others must hold USDT to operate normally, and this demand accounts for about 20% of the total, which will not easily withdraw.

Secondly, the redemption mechanism of USDT limits the rapid spread of panic. Only institutions that have passed whitelist verification can directly redeem with the issuer, and ordinary users cannot participate directly. This somewhat avoids the risk of large-scale asset sell-offs in the short term.

Even in extreme situations, 85% of the USDT reserves are in cash and cash equivalents, most of which are highly liquid T-Bills that can be quickly converted to cash. Considering the portion that must be held, even if 80% of users want to withdraw, it would be difficult to cause a serious decoupling in a short period of time.

Historically, USDT has faced panic sell-offs multiple times, but it has been able to quickly restore its peg. Even during the recent panic triggered by the UST collapse, USDT only briefly dropped to 0.95 USD before quickly bouncing back. This indicates that the market still has a high level of confidence in USDT, and the arbitrage mechanism is functioning well.

In summary, although risks cannot be completely eliminated, the likelihood of a USDT collapse is low. Factors such as the continuous improvement in asset reserve quality, good liquidity performance, and deep integration into the industry ecosystem provide strong support for the stability of USDT.