Tether's Price Has Stabilized, But the Stablecoin's Supply Is Still Shrinking

In what's become a rarity over the past month, the price of the tether stablecoin temporarily regained parity with the U.S. dollar Wednesday.

The exact reasons for the recovery are not clear, but the total supply of tethers in circulation has fallen rapidly in recent weeks.

Since Oct. 14 Bitfinex - an exchange that shares common ownership and management with Tether Ltd., the company behind USDT - has sent 930 million USDT to a wallet controlled by Tether Ltd. known as the "Treasury." These tokens are considered to have been removed from circulation, and though many of them still exist, Tether destroyed 500 million USDT last week.

Writing to CoinDesk last week, Bitfinex's director of communications, Kasper Rasmussen, said that Tether is not scaling back its supply intentionally, adding that the destruction of tether tokens "Does not have anything to do with defending dollar parity."

In an email to CoinDesk Wednesday, he declined to comment on "Secondary market price fluctuations of Tether." He added, "Bitfinex and Tether issue and redeem at 1 USD and that's all I can say."

As the second-most traded cryptocurrency by volume, according to CoinMarketCap, tether holds a key place in the crypto ecosystem.

Notably, USDT tokens have been flowing consistently into a wallet controlled by Bitfinex, suggesting that the exchange is doing a lot of "Redemption." The term, as used in the Tether white paper, refers to holders' ability to exchange USDT directly for U.S. dollars through Tether Ltd., a service many people say is not in practice available.

As the chart below shows, Bitfinex's USDT balance rose from close to zero to slightly more than 100 million from Oct. 25 to Oct. 30, the day the exchange sent almost its entire wallet balance to the Tether treasury in a single transaction.

Finally, Kraken, which also offers a USDT-USD trading pair and saw a notable inflow of tethers during the period when the stablecoin diverged from the dollar most drastically, has seen its USDT balance fall from nearly 55 million just three days ago, on Oct. 28, to just over 27 million.

While the exact trajectory of USDT tokens is not always obvious, it is clear that large numbers of tethers are flowing out of several exchanges, that large numbers are flowing into Bitfinex, and that Bitfinex is then sending them on to the Tether treasury.