Paolo Ardoino, the chief technology officer (CTO) of Tether (USDT), has termed the Terra (LUNA) ecosystem set up as the main catalyst behind the coins crash.
According to Ardoino, with LUNA acting as the highest collateral for the UST, it was inevitable for the stablecoin to lose its dollar peg once the token crashed.
“To have a safe reserve, you cannot have cryptocurrencies, especially 100% cryptocurrencies. These guys were creating two things, one their own cryptocurrency called LUNA, and a stablecoin on top of that cryptocurrency. That is a recipe for disaster,” he said.
Stablecoins and portfolio of collateral
Furthermore, the official noted that for stablecoins to avoid the fate of Terra, they need to have sufficient reserves, like in the case of Tether (USDT). To maintain the peg with the dollar, Ardoino stated that there should be a portfolio of assets, including U.S. treasuries, cash bank deposits and commercial papers.
After the collapse of Terra, Tether also made headlines after its peg temporarily dropped, with Ardoino stating that at the moment, traders attempted to short the stablecoin. However, due to the collateral portfolio, the stablecoin could not lose its peg.
Tether has since maintained that the minor drop in the U.S. dollar peg was due to a lack of liquidity on some crypto exchanges.
Following the crash of the Terra ecosystem, Terraform Labs, the company behind the cryptocurrency, has come under scrutiny over its role in the incident that resulted in significant crypto losses.
Consequently, the firm’s founder, Do Kwon, is now facing allegations of fraud. The company reportedly laundered $4.8 million through a South Korean shell company through a scheme involving a “blockchain consulting firm K” based in Seoul.
South Korean authorities are now investigating some of the early Terra developers, with reports indicating some employees were initially against the launch of UST stablecoin over possible “fluctuations in value.”
Watch the full interview below: