Paolo Ardoino: algorithmic high-cap stablecoins are dangerous for the market
The UST stablecoin, due to its approach to collateral, is dangerous for the cryptocurrency market. Such an opinion in an interview CoinDesk said Tether CTO Paolo Ardoino.
The stability of UST is provided by a smart contract that keeps the price at $1 through arbitrage with Terra coins (LUNA).
January 2022 earned Luna Foundation Guard, whose assets are designed to increase the sustainability of UST. By mid-April, its volume exceeded 42,500 BTC.
According to Ardoino, a $5 billion or $10 billion stablecoin does not pose a big threat to the crypto industry, but the situation changes with a larger amount of coins in circulation.
“If you have a UST-scale algorithmic stablecoin liquidation going on, then the market can handle it. But imagine if you have a stablecoin like Tether with a capitalization of $80 billion or $100 billion, which is mainly backed by digital assets. It is difficult to imagine what will happen and be sure of sufficient liquidity to stop the cascading effect,” he said.
April 18 UST bypassed at the total value of BUSD from Binance. The capitalization of the algorithmic stablecoin has grown from $180 million at the beginning of 2021 to $17.6 billion.
A significant part of the demand for UST is generated by users of the Anchor decentralized protocol, which offers more than 19% per annum on stablecoin deposits. If yields fall, holders may start massive token sales, which will increase the risk of insufficient liquidity.
Recall that in August 2021, the audit showedthat 49% of Tether’s reserves are made up of commercial paper – short-term debt.
In March 2022, the head of Terraform Labs, Do Kwon put $11 for LUNA growth.