Tether’s chief technology officer called the risks of algorithmic stablecoins

Paolo Ardoino believes the UST’s capitalization increase is dangerous for the cryptocurrency market

20.04.2022 - 08:15

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What’s new? Algorithmic stablecoins, such as UST from Terra, can be dangerous if they reach a high level of capitalization. This opinion was expressed by Paolo Ardoino, the CTO of Tether (the issuer of the USDT stablecoin), in an interview for CoinDesk.

The full version of the interview

What theses did Ardoino give? The risks for the market lie in the UST collateral model itself. The operation of the asset is based on a smart contract that maintains the price of the stablecoin through arbitrage transactions with LUNA coins. 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.

What had happened before? On March 26, 2022, the non-profit Luna Foundation Guard (LFG) bought $1 billion worth of bitcoins as part of increasing the stability of the algorithmic stablecoin UST. On March 30, LFG added 2943 bitcoins. The co-founder of the Terra protocol, Do Kwon, stated that he will continue to buy BTC to support the stability of the TerraUSD (UST) algorithmic stablecoin. In his view, bitcoin is liquid and is the best collateral asset for the stablecoin.

Terra is an open-source blockchain protocol for creating algorithmic stablecoins. The founders of the project are developers Do Kwon and Daniel Shin. The blockchain’s native token is LUNA.

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