Tether’s Chief Technology Officer Paolo Ardoino compared the algorithmic stablecoin TerraUSD (UST) to a “house of cards” that was due to collapse at any moment. In his words, the product was simply “badly designed”.
CTO @Tether_to, @paoloardoino on $UST:
“It’s all fun and games until you are a 10 billion stablecoin. And then it becomes much harder the faster you grow, the more you grow, right, because if you are a stablecoin, especially an algorithmic stablecoin..” https://t.co/UNuvNhZoP9
— REIMAGINE — Web3 Events and Media (@REIMAGINE_2021) May 18, 2022
“I don’t know Do Kwon. But let’s give him the presumption of innocence. He created this project with arrogance and the belief that he was right, and many supported him, of course, for economic reasons. However the project itself was not right. It was badly designed, like many others,” he said in the Reimagine podcast.
According to Ardoino, he and many other specialists understood that launching UST was a “bad idea”. The CTO emphasized that Kwon himself was aware that this “house of cards” could collapse at any time, but he did not have the opportunity to publicly state this.
Earlier, the Tether CTO stated that algorithmic stablecoins like TerraUSD pose risks to the market. In the podcast he repeated this thought.
According to Ardoino, UST could not maintain parity with the US dollar due to high capitalization, as the collateral was not enough to fix the situation in a volatile market.
At the same time, sales of BTC from the Luna Foundation Guard reserve fund exerted enough pressure on Bitcoin’s price to cause the market to crash even more.
“Essentially, they ended up in a cascading situation where the need to defend parity forced them to sell collateral, which provoked further declines in prices, which forced them to sell even more collateral and so on,” Ardoino explained.
He emphasized that the UST collapse would draw regulators’ attention to the sector. However, in his view, policymakers for starters should properly classify assets, since stablecoins like USDT are fully backed by reserves.
In Q1 2022, the issuer of the stablecoin USDT — Tether Holdings Limited — reduced its reserves in commercial papers by 17%. By the end of Q2, the company planned to reduce the collateral in these assets by another 20%.