Cryptocurrency markets continue to suffer heavy losses following the decoupling of the Terra (LUNA) ecosystem of stablecoin UST – causing discrepancies between stablecoin connections and the value of bitcoin (BTC).
Stablecoin Tether (USDT) showed signs of stress as USDT / USD traded below $ 0.99 on major exchanges. Paulo Ordoino, Tether and Bitfinex’s chief technology officer, took to Twitter to reassure USDT holders that over 300 million UDST tokens had been redeemed on their $ 1 connection in the past 24 hours.
Recall that tether honors USDt redemptions at $ 1 through https://t.co/fB12xESSvB.
> 300M redeemed in the last 24 hours without sweat drops.
– Paolo Ardoino (@paoloardoino) May 12, 2022
The Cointelegraph contacted Tether CTO Paolo Ardoino to see if there was any reason to worry about the USDT’s ability to maintain its $ 1 connection in light of recent events. Ardoino emphasized that the USDT has maintained its stability with many black swan events and highly volatile market conditions and has never rejected redemptions.
“Tether continues to process redemptions in the usual way amid some expected market turmoil after the market yesterday. Despite this, Tether has not and will not deny any of its customers redemptions, which has always been its custom. “
With fears, uncertainties and doubts at levels reminiscent of the 2018 Bitcoin market crash, Ardoino offered a perspective based on the technical differences between USDT and algorithmic stablecoins:
“Unlike these algorithmic stablecoins, Tether has a strong, conservative and liquid portfolio consisting of cash and cash equivalents, such as short-term Treasury bills, money market funds and commercial paper holdings from A-2 issuers and above.
Persistent LUNA / UST status may well have diminished trust in stablecoins and the ability of the forum to redeem token exchange agreements for their $ 1 connection. Despite that fact, Ardoino believes that stablecoins will continue to be an important cog in the cryptocurrency space. “I do not believe that trust has ever been lost for central stablecoin users,” he said, adding: “There will always be a market for stablecoins as they give traders the opportunity to interact with larger cryptocurrencies.
The price of BTC / USDT was also out of line with other notable stablecoins – with a difference in value compared to other stablecoin trading pairs ranging from $ 500- $ 1000 on different exchanges.
Connected: Bitcoin drops below $ 27K to December 2020 minimum as Tether stablecoin connection drops below 99 cents
The collapse of Terra’s LUNA and its algorithmic stablecoin Terra USD has sent shockwaves through the market. The relationship between the two was rather simple, users could exchange 1 dollar worth of LUNA for 1 UST or vice versa.
The system failed when the price of UST dropped below its $ 1 connection, leading to massive arbitrage transactions with traders who burned UST for $ 1 worth of Luna which was then sold at a profit. However, the continued sale of Luna led to a sharp drop in its value, not only canceling the arbitrage opportunity but increasing Luna’s volume in circulation while prices continued to fall.
The rest is history – where Terra’s senior brass is now trying to remedy a bad situation. Investor sentiment has taken a big hit and the Bitcoin Fear and Greed index is in the Extreme Fear stage.
Stablecoins have long been a source of stability for the cryptocurrency market around the world, but the uneven pace of 2022 combined with the LUNA / UST problem has affected other prominent dollar-linked currencies.
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