Terra (UST) should have been 300% backed per Paolo Ardoino of Terra (USDT)

How Much Damage did the Terra (UST) Spiral do to the stable coin guys and the future of the market and how regulators start viewing this in the Opinion of Paolo Ardoino:

I think what this event triggered is the necessity for regulators to categorize stable coins. So, in fact we in the crypto market we are categorizing stable coins – Terra (UST) is considered an algorithmic stable coins – we do it based on functions, features and disclosures.

Centralized stable coins like Tether (USDT) are completely different category. There are two different types of stable coins like centralized and algorithmic which are completely different leagues.

Tether has extremely liquid portfolio with respect to all the stable coins and tokens. It is not that we never thought about an algorithmic stable coin to create yet another stable coin under Tether umbrella, but the reason why we have been always careful in algorithmic stable coin was exactly this problem.

If you have assets that are backing the stable coin and these assets are subject to heavy volatility then you are in the risk of having to liquidate your assets real quick in the market and bringing the market even further down and triggering basically a Cascade.  So, the algorithmic stable coin are a really interesting idea, but when I recently said a sentenced to describe my general thought on the algorithmic stable coins,  “It is all fine in the game until you are a 10 billion dollar stable coin, but it becomes much harder the more you grow.”

So, if you are a 10 billion stable coins and a billion dollar stable coin or little bit lower if you have to liquidate assets it is still feasible with a liquidity that we have in the crypto markets in general. But if you are 15, 10, 20, 30, imagine an 80 billion stable coin like Tether, unless you have an extremely good portfolio that is following the dollar peg you will never be able to survive in this market.

In a way it was quite clear and scientific that it would happen sometime.  I wouldn’t believe that happened so quickly and so aggressively.

I think that if you want to do an algorithmic stable coin for example it has to be like 300% backed by solid assets like solid crypto assets. Not like 105% or 110% or even less.  If you want to do an algorithmic stable coin that has to be insanely backed, multiple hundred percent backed.

And of course, not many algorithmic stable coin issuers will like this idea because if you are 300% backed, 400% backed, you will grow very slowly. For the 20 billion stable coin that was like Terra (UST) you needed 60 billion assets.  It is not the most-sexy idea for stable coin issuers, but the algorithmic issuers, but it is what it is. That is why with Tether we choose to rely on asset that would follow the US dollar peg. It is not that we are crazy. We understand the risk, we need to put our entire portfolio through liquidity analysis and risk analyses and use the worse-case scenario.  And, all the black swan events in the recent history from 20 years ago.