Tether’s CTO Reveals The Real Reason Behind Terra’s UST Stablecoin Disaster

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The post Tether’s CTO Reveals The Real Reason Behind Terra’s UST Stablecoin Disaster appeared first on Coinpedia – Fintech & Cryptocurreny News Media| Crypto Guide

Paolo Ardoino, Tether (USDTchief )’s technical officer (CTO), has identified the Terra (LUNA) ecosystem as the primary cause of the coin’s fall.

Ardoino pointed at the Terra developers’ decision to create the UST stablecoin and back it with bitcoin. He called this move a “recipe for disaster” during an interview on Kitco News dated June 7.

As per Ardoino, considering LUNA as the biggest backing for the UST, the stablecoin was destined to lose its dollar peg after the token plummeted.

He believes that we should never use cryptocurrencies, especially 100% cryptocurrencies, as a stable backup. Ardoino points out that these people were working on two projects. One on their own cryptocurrency, LUNA, and next, a stablecoin built over that cryptocurrency. Hence it’s a tragedy waiting to happen.

Stablecoins Should Have Sufficient Reserves

Additionally, the official stated stablecoins can escape of similar destiny like Terra. For this they must have significant reserves, like Tether does (USDT). Ardoino says that a variety of assets, including US treasuries, cash bank deposits, and commercial papers, must be maintained to keep the peg with the dollar.

Following the fall of Terra, Tether made news because its peg momentarily plummeted. Ardoino claims that traders were attempting to short the stablecoin at the time. The stablecoin, however, couldn’t really lose its peg because of the collateral holdings.

Since then, Tether claims that the little decline in the US dollar peg was due to lack of liquidity on several cryptocurrency exchanges.

As a result, at the moment the Terra founder, Do Kwon, is facing conspiracy charges. The firm allegedly laundered $4.8 million from a South Korean shell company.

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