Cryptocurrency markets continue to suffer heavy losses following the decoupling of the dollar from the stablecoin TerraUSD (UST) from the Terra ecosystem, which has caused discrepancies between stablecoin pegs and the value of Bitcoin (BTC).
La stablecoin Tether (USDT) showed signs of stress, as the USDT/USD pair traded below $0.99 on major exchanges. Tether and Bitfinex CTO Paulo Ardoino took to Twitter to assure USDT holders that more than 300 million UDST tokens had been converted to their $1 price in the last 24 hours.
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Reminder that tether is honouring USDt redemptions at 1$ via https://t.co/fB12xESSvB .
>300M redeemed in last 24h without a sweat drop.– Paolo Ardoino (@paoloardoino) May 12, 2022
Cointelegraph reached out to Ardoino to find out if there is cause for concern in USDT’s ability to maintain its $1 peg in light of recent events. Ardoino highlighted that USDT has maintained its stability through multiple black swan events and highly volatile market conditions and has never negated dollar conversions:
“Tether continues to process conversions as normal amid some expected panic in the market after yesterday’s trading. Despite this, Tether has not and will not reject conversions for any of its customers, which has always been its practice.” “.
With fear, uncertainty, and doubt (FUD) at levels reminiscent of the 2018 Bitcoin market crash, Ardoino offered perspective given the technical differences between USDT and algorithmic stablecoins:
“Unlike these algorithmic stablecoins, Tether maintains a strong, conservative, and liquid portfolio consisting of cash and cash equivalents, such as short-term treasury notes, money market funds, and commercial paper holdings from A-2 rated issuers. and above”.
Terra’s current situation (LUNA) and UST may have undermined confidence in the stablecoins and in the ability of the respective platforms to convert the tokens for their $1 coin. Despite this, Ardoino believes that stablecoins will remain a vital cog in the cryptocurrency space. “I don’t think trust has ever been lost for centralized stablecoin users,” he said, adding: “There will always be a market for stablecoins as they present an opportunity for traders to interact with the broader crypto ecosystem.”
The price of the BTC/USDT pair was also off when compared to other notable stablecoins – with the difference in value compared to other stablecoin trading pairs ranging from $500 to $1,000 across different exchanges.
The collapse of LUNA and its algorithmic stablecoin UST has sent shockwaves through the markets. The relationship between the two was quite simple: Users could exchange 1 dollar in LUNA for 1 UST or vice versa.
The system failed when the price of UST fell below its parity of $1, leading to a massive amount of arbitrage trades where traders burned UST for $1.00 of LUNA, which was then sold for profit. However, the continued selling of LUNA caused its value to plummet, not only nullifying the arbitrage opportunity but increasing the amount of LUNA in circulation while the price continued to fall.
The rest is history, as Terra co-founder Do Kwon attempts to remedy a bleak situation. Investor sentiment has taken a heavy hit, with the Bitcoin Greed and Fear Index sitting at the range of extreme fear.
Stablecoins have long been a source of stability for crypto markets around the world, but the woes of 2022, coupled with the LUNA/UST debacle, have had a ripple effect on other prominent dollar-pegged coins.
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