The Real Cause of Stablecoin Surge: Absence of Market Makers
On the 10th of this month, a statement from President Trump triggered a sharp decline in the cryptocurrency market. During this process, the price of USDT on domestic exchanges surged to 5,700 won, while USD1 exceeded 10,000 won, marking an unusual price spike. This led to questions about the stability of stablecoins, with many stating that stablecoins were not stable. However, this perspective misunderstands the essence of the phenomenon. Data shows that the dollar pegging of stablecoins only saw a temporary increase of 0.5% on the 10th, while remaining stable overall. The only distorted factor was the price in Korean won.
So, what caused this phenomenon? The absence of market makers to accommodate the surging market buy orders was the key reason. On the 10th, as Bitcoin plummeted, altcoins dropped by dozens of percentages, likely leading domestic leveraged investors, who had bet on rising prices expecting an October rally or Santa rally, to face significant margin calls on overseas exchanges. To avoid forced liquidations, these investors needed to deposit additional collateral, which is primarily done using dollar stablecoins. Consequently, there was a sudden surge in cash buying demand for stablecoins in Korea.
The problem was that there was a severe lack of sell orders to meet this explosive buying demand. According to the basic principles of supply and demand, the price of stablecoins in won skyrocketed due to the insufficient supply. In normal conditions, a price exceeding 1,500 won would typically deter buyers, but faced with significant asset declines and margin call pressures, investors likely rushed to market buy regardless of the price. The prices of 5,700 won for Tether and 10,000 won for USD1 can be analyzed as a result of the markets desperation.
To prevent market distortions caused by this mismatch between buying and selling, safety mechanisms are essential. In summary, the sharp rise in stablecoin prices was not a failure of the stablecoins themselves but rather a consequence of the lack of market makers and the extreme demand for stablecoins amidst a tumultuous market.
So, what caused this phenomenon? The absence of market makers to accommodate the surging market buy orders was the key reason. On the 10th, as Bitcoin plummeted, altcoins dropped by dozens of percentages, likely leading domestic leveraged investors, who had bet on rising prices expecting an October rally or Santa rally, to face significant margin calls on overseas exchanges. To avoid forced liquidations, these investors needed to deposit additional collateral, which is primarily done using dollar stablecoins. Consequently, there was a sudden surge in cash buying demand for stablecoins in Korea.
The problem was that there was a severe lack of sell orders to meet this explosive buying demand. According to the basic principles of supply and demand, the price of stablecoins in won skyrocketed due to the insufficient supply. In normal conditions, a price exceeding 1,500 won would typically deter buyers, but faced with significant asset declines and margin call pressures, investors likely rushed to market buy regardless of the price. The prices of 5,700 won for Tether and 10,000 won for USD1 can be analyzed as a result of the markets desperation.
To prevent market distortions caused by this mismatch between buying and selling, safety mechanisms are essential. In summary, the sharp rise in stablecoin prices was not a failure of the stablecoins themselves but rather a consequence of the lack of market makers and the extreme demand for stablecoins amidst a tumultuous market.
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