Then, Paolo Ardoino, Tether’s chief technology officer, rushed to reassure investors. He emphasized that there are essential differences between USDT and UST: the company behind USDT has a large reserve of U.S. debt, and currently has no problem with redemption, and even repaid $600 million in the past 24 hours.
Not long after he calmed the market, the value of USDT rebounded and has now resumed its peg to the U.S. dollar.
CTO emphasizes that USDT and UST are not the same
This week, the world’s third-largest stablecoin UST (also known as TerraUSD), which was supposed to be 1:1 “stably pegged” to the U.S. dollar, had a thunderstorm, but it has plummeted to less than 13 cents as of press time, far below the expected 1-dollar-pegged exchange rate . The value of Luna, another sister token used to absorb the price shock of UST, has almost completely evaporated, and as of press time, the value is less than 1 cent. Just a month ago, on April 5, the value of Luna reached a high of $119.5.
Affected by this, the world’s largest stable currency Tether (ie USDT) also experienced a shock. Many traders fear that after UST collapses, other stablecoins will follow. Also, some new cryptocurrency users may have confused UST and USDT as well.
“It was definitely part of the chaos,” Ardoino said. “There was USDT-related fear everywhere, and the market became a mess and panic.”
In response, Ardoino spoke with cryptocurrency pioneer Samson Mow and Blockstream CEO Adam Back on Thursday on Twitter Space for an hour, focusing on the differences between UST and USDT.
Ardoino emphasized that the UST’s linked exchange rate system is maintained primarily through algorithms and transaction incentives, partially reliant on Bitcoin reserves. USDT invests more than half of its foreign exchange reserves in U.S. Treasuries, so when a large number of users want to redeem the fund, Tether can quickly sell U.S. Treasuries and avoid protocol defaults – something that UST cannot do.
USDT can still be redeemed normally
According to CryptoCompare, USDT is the largest stablecoin in the world, and roughly half of all Bitcoins are purchased through USDT. By comparison, the stablecoin TerraUSD (aka UST), which crashed this week, is much smaller.
Ardoino said companies received $2 billion in redemption requests after the UST slump, an unusually high number. However, he said that as long as the user requests a wire transfer, the USDT can be redeemed at any time at the 1:1 exchange rate, so in fact, the USDT has not been decoupled.
Ardoino also said that UST’s mistake was also growing too fast to ensure normal redemption even if the cryptocurrency price fell.
Ardoino also emphasized that the use of UST is also limited to value-add — users invest it in decentralized finance for up to 20% annualized returns — and not for payments or transactions. Meanwhile, USDT can be used to buy everything from daily necessities to homes.
“There is a real use behind USDT that other projects don’t have,” said Samson Mow.