Tether's Paolo Ardoino Comments on UST

Tether and Bitfinex Chief Technology Officer (CTO) Paolo Ardoino is a full-stack developer and computer scientist. In 2014 he started working for Bitfinex as a senior software developer and was later promoted to Chief Technology Officer within his first two years of working for the company.

Ardoino recently attended the Paris Blockchain Week Summit and shared some of his thoughts on TerraUSD’s (UST) recent parabolic rise in market capitalization by stating “It’s all fun and games if you’re a $5 [billion] or $10 billion market cap stablecoin.” He goes on to explain that as UST continues to grow in value, it is hard to predict what will happen if there is not enough liquidity for the stablecoin to handle in the event of a massive sell-off.

While larger stablecoins like Tether’s USDT and Circle’s USD coin (USDC) are backed 1:1 by U.S. dollars, TerraUSD is algorithmically backed. Instead of using a reserve asset to back TerraUSD, a smart contract is used for keeping the price of UST anchored to the value of $1 by burning (destroying) LUNA tokens that mint (creating) new UST tokens. 

Since both UST and LUNA are built within the Terra ecosystem, holders have the ability to convert their LUNA for UST or vice versa at their own convenience. If UST is swapped for LUNA, then a percentage of that LUNA is burned and the remaining amount is put into a community treasury. This treasury allows for the community to invest in applications or services within the Terra ecosystem. 

In contrast, Tether’s USDT stablecoin monetary structure only requires each token to be pegged by the U.S. dollar. Ardoino has stated that he and the Tether team have been taking steps to provide more transparency of Tether’s holdings. “We started to also provide the breakdown of reserves. We were the first stablecoin to do that,” he says.

During 2021, Tether also reduced their positions in commercial papers (similar to bonds but are bought by institutions to receive a fixed interest rate) and have been providing quarterly reports to the Attorney General of New York in order to meet compliance. In their most recent filing, Tether reduced their commercial paper holdings by more than 20%.

Tether’s reserve breakdown and their attestation reports may be found directly on their website.