Categories: Crypto NewsNews

Tether says it ‘has nothing in common’ with Terra UST

Published by
Nonhlanhla P Dube

The demise of Terra UST has harmed the reputation of stablecoins as well as the broader crypto sector. Tether, on the other hand, claims to be different in an attempt to disassociate itself from the impact.

Tether notes in a recent blog post that, as a collateralized stablecoin, it “has nothing in common” with UST, which relies on an algorithm to keep its dollar peg. In the case of USDT, collateralized means that the token is backed by assets such as dollars and cash equivalents.

“While UST is referred to as a stablecoin, it has nothing in common with collateralized stablecoins like Tether USD₮. UST is an algorithmic stablecoin.”

Billions of dollars were lost in the Terra debacle, the consequences of which will be felt for years to come. Can Tether, on the other hand, restore market confidence?

In the firing line: algorithmic stablecoins

According to the blog post, despite the years of instability in cryptocurrency, Tether has remained the ‘primary form of dollar-based liquidity.’

It goes on to say that, being a collateral-based stablecoin, USDT holders can exchange their tokens for dollars 1:1. And the company has always been able to pay its redemption commitments since its beginning.

“Tether has never failed to process a redemption request for USD at a value of $1(R15.91) per USD token since 2015.”

While USDT exchange rates may fluctuate from time to time, there is no risk of de-pegging as long as Tether may redeem tokens at face value.

The post went on to criticize algorithmic stablecoins, claiming they had a poor track record and several examples of failure. It also quoted a University of Calgary research that characterized them as naturally fragile and in a perpetual state of vulnerability.

Tether was never de-pegged, according to Bitfinex’s CTO

Tether deviated significantly below its $1 (R15.91) peg price on May 12. The USDT price fell as low as $0.9409(R14.97) on that day, sparking fear in markets already hurting from the UST crash.

Nonetheless, Bitfinex CTO Paolo Ardoino addressed the problem later that evening in a Twitter Spaces chat, clarifying the technical differences between collateralized and algorithmic stablecoins.

Ardoino also stated that Tether was adequately liquid to meet redemptions at $1(R15.91) even amid the panic selling. As a result, notwithstanding the variations in exchange rates, there was never a difficulty.

Soon after the public address, USDT was restored to its peg price.

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 nonhlanhla@rateweb.co.za

Share
Published by
Nonhlanhla P Dube

Recent Posts

Tesla Unveils Refreshed Model 3 in North America with Exciting Upgrades

Model 3 Refresh: Tesla introduces a restyled Model 3 in North America, featuring a rear…

January 11, 2024

SEC Twitter Account Compromised, False Bitcoin ETF Approval Post Triggers Market Volatility

Unidentified individual accessed SEC's Twitter through a third party. Lack of two-factor authentication heightened vulnerability.…

January 11, 2024

Global Currency Markets Navigate Economic Uncertainties: Yen Weakens, Dollar Awaits U.S. Inflation Data

Japanese yen falls against the dollar and euro due to persistently shrinking real wages for…

January 11, 2024

Oil Prices Unmoved as Unexpected U.S. Inventory Build Raises Concerns

Unexpected Inventory Build: U.S. crude inventories unexpectedly grew, sparking concerns about weakening fuel demand and…

January 11, 2024

YanGuFang International Group Appoints Interim Executives Amidst CEO and CFO Detainment

Leadership Shake-up: CEO and CFO of YanGuFang International Group detained by Shanghai Police, prompting interim…

January 11, 2024

Cryptocurrency Market Analysis: SHIB, SOL, and ETH Navigate Challenging Terrain

SHIB breaches 200-day EMA, signaling bearish sentiment. Historical data suggests strong buyer reactions and potential…

January 11, 2024