Terra’s Collapse Is In Center Of Attention, What It Means For USDT?

Terra’s collapse is in center of attention yet again but Tether’s co-founder and other DEFI executives weigh in on what this can mean for their USDT and USDC stablecoins so let’s read more today in our latest cryptocurrency news today.

As the market panics over the implications that the UST stable coins lose their dollar peg, the questions were raised about the other stablecoin competitors like USD Coin and Tether. Tether and USD Coin are the two biggest stablecoins by market cap and are backed by the US dollar as well which means that the issuers of the coins maintain reserves of cash or cash equivalents to back the coins that are in circulation. In the meantime, UST is an algorithmic stablecoin that uses a smart contract to maintain the 1:1 peg and started keeping the majority of the reserves in BTC thanks to the Luna Foundation Guard. Given the volatility, however, at one point yesterday, the UST price hit an all-time low and lost its peg to the dollar.

Even though its tokenomics are different, there’s been some concerns that Terra’s troubles can cast some doubt on other stablecoins but Tether’s co-founder Reeve Collins said there’s no need to panic right now:

“Tether holders should feel very secure that Tether will hold its peg since it is dollar-backed and market forces do not affect it. I wouldn’t be surprised to see an increase in holders of algorithmic stablecoins start to move their money into asset-backed coins like Tether.”

Terra’s collapse is still in the spotlight and it seems that asset-backed stablecoins have had their share of problems on a few occasions, Tether and USDC lost their dollar pegs. USDT dropped to $0.98 as crypto and traditional markets reacted to the news that people were advised to shelter in place and slow the spread of COVID-19. USDC lost the dollar peg the same day. The CEO of Umee, Brent Xu said he Is quite optimistic that UST will be able to restore its peg but he pointed out that USDC and USDT are not immune to market troubles:

“Since these coins are fiat collateralized, there is less risk of dramatic fluctuations in the value of their currency reserves—provided they actually have 1:1 backing.”

Over the past seven years that it was trading, Tether published eight assurance reprots about its reserves. The platform reserves were 84% cash, commercial paper, cash equivalents, 5% corporate bonds and precious metals, 5% secured loans, and 6% in other assets such as crypto. The ratio of commercial paper which is unsecured was a source of concern and it accounted for 37% of the Tether cash reserves. The Chinese real estate developers Evergrande and Kaisa were risking missing the US Dollar bond payment which is a commercial paper made up of $30.6 billion of tether’s reserve at the time.