Paolo Ardoino, Tether (USDTchief )’s technical officer (CTO), has identified the Terra (LUNA) ecosystem as the primary cause of the coin’s fall.
Ardoino highlighted the Terra developers’ decision to create the UST stablecoin and back it with bitcoin. He called the move a “recipe for disaster” in a June 7 Kitco News interview.
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 thinks we should never use cryptocurrencies, especially 100% cryptocurrencies, as a stable backup. Ardoino specifies that these people were working on two projects. One on their own cryptocurrency, LUNA, and then, a stablecoin built on that cryptocurrency. So there is 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.
After Terra fell, Tether made headlines because his ankle momentarily dropped. Ardoino claims that traders were attempting to short the stablecoin at the time. The stablecoin, however, could not really lose its peg due to 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, Terra founder Do Kwon is currently facing conspiracy charges. The company allegedly laundered $4.8 million from a South Korean front company.
