All pegged stablecoins have the “problem” of some volatility. It can last from seconds to days. The market participants buying or selling power is then imbalanced, and the normal market-making process fails to react. This will likely mean a financial loss for the investors who trade, while the issuer earns an extra profit as they take the contrarian position.
These small numbers might not sound like an issue, but when talking about daily billions of dollars in turnover, fractional amounts can add up to millions of profits.
To make it worse, there is significant fear in the market already. The rumors about unbacked USDT and Binance USD are holding on for years. The issuer has the inside knowledge and is the only one who knows whether or not the collateral holdings are sufficient. All this is just increasing the volatility of the “stablecoin”.
The following are the strongest deviation examples of the last 1-2 years only for all significant stablecoins from different major centralized exchanges:
Tether ($0,941-$1,099)
USD Coin ($0,951-$1,100)
Binance USD ($0,205-$1,014)
MakerDAO ($0,896-$1,07)
Tron ($0,916-$1,047)
Note the price deviations look very similar on decentralized exchanges.
The chart demonstrates quite the usual behavior of the issuers:
Conclusion
The volatility is not a good-given punishment for investors. The issuers lack to increase their market-making ticket sizes to dampen volatility.
These bids- or asks- overhangs are not anything unusual. These are the few “interesting days” in the daily work of a professional market maker.
I see these possibilities:
The issuer needs more collateral in hot storage.
The issuer prioritizes arbitrage aspects and exploits the situation of overhangs.
The issuer has outsourced the market-making to a professional market maker that operates under profit-maximizing aspects. This is acceptable as long as different market makers can compete effectively and have satisfactory conditions (transparency), but who would buy USDT when there are rumors of insufficient collateral?
While all reasons are at least problematic in regulated markets, it surprises me that nobody complains about this Wild West practice.
Eventually, it may not matter what the motive for this is; it seems fishy and should be considered when buying or selling stablecoins.
Link
https://www.theblock.co/data/decentralized-finance/stablecoins