Paolo Ardoino attributes another reason for the collapse of the project to the arrogance of the head of Terraform Labs, Do Kwon

Tether CTO called the UST stablecoin a poorly designed “castle of cards”

20.05.2022 - 13:35

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3 min

What’s new? Tether CTO Paolo Ardoino compared the TerraUSD (UST) stablecoin to a “castle of cards” that was due to collapse at any moment. He believes the project was “poorly designed.” In this, Ardoino sees no direct fraud implication in the collapse of the Terra ecosystem. He noted that the rapid growth of UST’s capitalization led to the stablecoin losing its peg to the US dollar. Ardoino explained that there were not enough reserves to maintain the peg, but enough to further crash the market. He stated this on the Reimagine podcast.

Reimagine’s podcast

What else did Ardoino say? One of the reasons for the collapse of the project was the arrogance of the head of Terraform Labs Do Kwon, Ardoino believes. In his view, Do Kwon was arrogant about other projects, confident of being right, and attracted many people who supported him because of economic considerations.

Ardoino stressed that the collapse of the UST rate will bring the crypto industry even more attention from regulators. In this regard, he urged officials to properly classify assets, as centralized stablecoins such as Tether (USDT) are fully backed by reserves.

In this, Ardoino noted that Kwon should not be accused of fraud before a court ruling, also stressing that he is not personally acquainted with him.

What events happened before? In April, Paolo Ardoino said that algorithmic stablecoins such as UST could be dangerous when they reach a high level of capitalization. The risks to the market, he believes, lie in the UST collateral model itself. The asset’s operation is based on a smart contract that maintains the price of the stablecoin through arbitrage transactions with Terra’s (LUNA) native tokens. Ardoino said that the higher the capitalization of the asset, the more threats it poses for the market in the case of cascading position liquidations.

On 12 May, the Tether (USDT) stablecoin began losing its peg to the US dollar, with its price dropping to $0,95. Ardoino said that the company continues to redeem stablecoins for fiat at a one-to-one ratio. Tether paid out $300 million to users per day. Later that day, Ardoino reported that USDT regained its pegging through the token burning. Developers burned 3 billion USDT in one day using a special account called Tether Treasury.

G7 countries called to accelerate the “development and implementation of consistent and comprehensive regulation” of cryptocurrencies following the collapse of the Terra ecosystem. The G7 appealed to the Financial Stability Board (FSB), which is responsible for drafting the document.

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