Comparing Volatility of Tether versus Other Stablecoins

Stablecoins have become an integral part of the cryptocurrency ecosystem, providing a way for investors to hedge against the high volatility typically seen in the markets. Tether (USDT) has long been the dominant stablecoin, but its monopoly is being challenged by a growing number of competitors like USD Coin (USDC), Binance USD (BUSD), and Dai. These new stablecoins boast improved transparency and regulations compared to the controversial Tether.

But how do these top stablecoins stack up against each other when it comes to volatility? In this article, we dive into the volatility profiles of Tether and other major stablecoins to see how they differ.

Tracking Volatility Through Standard Deviation

One way to mathematically track and compare volatility is by looking at the standard deviation of daily returns. Standard deviation measures how dispersed the daily returns are from the mean. A higher standard deviation indicates more volatility and risk.

Tether has faced criticism over its lack of transparency and doubts about its dollar reserves. This controversy has contributed to higher volatility compared to other top stablecoins. Over the past year, USDT has had a standard deviation of daily returns around 0.04%, nearly 4 times higher than USDC's standard deviation of 0.01%.

USDC, BUSD, and DAI have lower deviations, in the 0.01-0.02% range, thanks to their better regulations and auditing. However, Tether still remains less volatile than leading cryptocurrencies like Bitcoin and Ethereum.

Periods of Extreme Volatility

While Tether’s average volatility is higher, during certain periods of crypto market instability, its volatility can spike far above other stablecoins.

One example occurred in May 2022 when Tether deviated over 5% from its $1 peg amidst plunging crypto prices. Its 30-day volatility shot up to over 10 times that of USDC. Tether relies heavily on commercial paper and other assets vulnerable to crypto downturns. Meanwhile, USDC and other stablecoins were able to maintain their pegs through treasuries holding cash and cash-equivalents.

Tether’s volatility also tends to spike higher during periods of controversy, like when it paid a $41 million fine to the CFTC over misrepresentation of reserves in 2021. USDT volatility hit 0.9% during this period while USDC volatility remained around 0.02%.

Factors Influencing Volatility

What drives the volatility differences between stablecoins like Tether and USDC? There are a few key factors:

  • Reserves composition - Tether relies heavily on riskier commercial paper. USDC has most reserves in cash and cash equivalents.
  • Redemption mechanisms - Tether lacks transparency around its redemption mechanisms. USDC has clear redemption rules spelled out.
  • Regulation - Tether is less regulated compared to rivals. USDC is regulated as a bank and fully audited.
  • Market size - Tether has a much larger market cap, making it more susceptible to volatility spikes.
  • Controversies - Tether is no stranger to controversy, which breeds uncertainty and volatility.

These factors combine to make Tether generally more volatile than USD Coin and other top stablecoins. While no stablecoin achieves zero volatility, proper collateralization and regulation can minimize swings.

My Take As An Author

"Tether paved the way as the first stablecoin but it failed to adapt to increasing demands from regulators and investors. Competitors learned from its mistakes and now provide superior stability and transparency. However, Tether still maintains a first mover advantage."

Key Questions Around Stablecoin Volatility

How Does Stablecoin Volatility Compare to Fiat Currencies?

Even though stablecoins are designed to minimize volatility, most remain more volatile than fiat currencies like the U.S. dollar. For example, the U.S. Dollar Index (DXY) has a typical daily volatility of 0.3-0.5%. USD Coin has averaged around 0.015% daily volatility over the past year, 30 times more than DXY.

However, during periods of instability, certain fiat currencies can see spikes in volatility that exceed stablecoins. For instance, in 2022, the Turkish Lira saw volatilities upwards of 5% per day amidst raging inflation.

No asset achieves absolute stability. But leading stablecoins like USD Coin provide a reasonable approximation of low fiat currency volatility. Their stability mechanisms minimize the frequency and magnitude of volatility spikes.

How Will Regulations Affect Stablecoin Volatility?

Increased regulation is generally seen as beneficial in reducing stablecoin volatility. Rules around collateralization, auditing, and redemption give traders and investors confidence in a stablecoin's ability to maintain its peg.

Potential upcoming regulatory frameworks for stablecoins from the SEC, CFTC, and Congress will likely impact volatility too. All top stablecoins could see volatility drop under clearer federal oversight. However, regulations that are too onerous could also concentrate activity into fewer stablecoins, reducing competition.

Tether would likely see the biggest volatility drop from regulation since it has faced the most scrutiny. But the volatility differences between leading stablecoins may decrease as rules provide an equal playing field. Stablecoin volatility will be an important metric to watch as new regulations roll out worldwide.


While no stablecoin has achieved perfect stability, new entrants like USD Coin and Binance USD have reduced volatility magnitudes closer to fiat currencies through improved design and regulations. However, Tether remains the most volatile of the top stablecoins due to reliance on riskier reserves, lack of transparency, and controversies.

As stablecoins gain adoption for payments and lending, volatility will have real impacts for users. That makes the innovations by Tether's competitors an important development in making stablecoins a more viable tool for the future of digital finance.

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