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Terra’s creation of a token and stablecoin was a “recipe for disaster”

Paolo Ardoino, Tether (USDTchief )’s technical officer (CTO), has identified the Terra (LUNA) ecosystem as the primary cause of the coin’s crash.

Ardoino called the Terra creators’ decision to create the UST stablecoin and back it with bitcoin a “recipe for disaster” in an interview with Kitco News on June 7.

According to Ardoino, because LUNA was the biggest collateral for the UST, the stablecoin was bound to lose its dollar peg once the token plummeted. “To have a safe reserve, you cannot have cryptocurrencies, especially 100% cryptocurrencies. These guys were creating two things, one their own cryptocurrency called LUNA, and a stablecoin on top of that cryptocurrency.  “That’s a recipe for disaster,” he stated.

Stablecoins and collateral portfolio

Furthermore, the official stated that in order for stablecoins to avoid the destiny of Terra, they must have significant reserves, as Tether does (USDT). Ardoino argued that a portfolio of assets, including US treasuries, cash bank deposits, and commercial documents, should be maintained to preserve the peg with the dollar. Following the collapse of Terra, Tether made news because its peg temporarily plummeted, with Ardoino alleging that traders were attempting to short the stablecoin at the time. The stablecoin, however, could not lose its peg because of the collateral portfolio.

Tether has now claimed that the modest decline in the US dollar peg was caused by a lack of liquidity on several cryptocurrency exchanges.

Following the Terra ecosystem’s fall, Terraform Labs, the firm behind the cryptocurrency, has come under criticism for its role in the catastrophe, which resulted in significant crypto losses.

As a result, the firm’s founder, Do Kwon, is now facing fraud charges. The corporation allegedly laundered R66.8 million through a South Korean shell company in a plan involving the Seoul-based “blockchain consulting firm K.”

South Korean authorities are also investigating some of Terra’s early creators, with reports stating that certain staff were initially opposed to the launch of the UST stablecoin due to potential “value fluctuations.”

Terra’s creation of a token and stablecoin was a “recipe for disaster”

Nonhlanhla P Dube

Nonhlanhla P Dube is a senior news reporter at Rateweb. Nonhlanhla is a student of International Relations at the University of South Africa. She reports primarily on personal finance and economics. You can contact her directly by email at [email protected]

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