The UST stablecoin, due to its approach to collateralisation, is dangerous for the crypto market. This view was expressed in an interview with CoinDesk by Tether’s chief technology officer Paolo Ardoino.
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UST’s stability is maintained by a smart contract that keeps the price at $1 through arbitrage operations with Terra (LUNA) coins.
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In January 2022, the Luna Foundation Guard fund raised assets designed to bolster UST’s resilience. By mid-April its holdings had превысил 42,500 BTC.
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According to Ardoino, a stablecoin with a market cap of $5 billion or $10 billion does not pose a major threat to the crypto industry, but the situation changes with a larger amount of coins in circulation.
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“If you have a liquidation of an algorithmic stablecoin on the scale of UST, the market may cope with it. But imagine a stablecoin like Tether with a market capitalization of $80 billion or $100 billion, which is largely backed by digital assets. It’s hard to imagine what would happen, and to be confident in sufficient liquidity to stop a cascading effect,” he said.
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On April 18, UST обошел Binance’s BUSD in total value. The market capitalization of the algorithmic stablecoin grew from $180 million at the start of 2021 to $17.6 billion.
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A significant portion of demand for UST is driven by users of the decentralised protocol Anchor, which offers more than 19% annual yield on deposits in the stablecoin. If yields fall, holders may start mass selling of tokens, increasing the risk of insufficient liquidity.
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In August 2021, показал that 49% of Tether’s reserves consist of commercial papers — short-term debt obligations.
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In March 2022, Terraform Labs founder Do Kwon поставил $11 million to boost LUNA’s growth.
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For more on Terra and how the UST algorithm works, read карточках Forklog.
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