Industry Bigwits Detail the Fundamental Differences Between Collateralized and Algorithmic Stablecoins
Original source: The BTC Times
Recently, Samson Mow, CEO of JAN3, Paolo Ardoino, CTO of Tether and Bitfinex, Adam Back, co-founder and CEO of Blockstream, Gabor Gurbacs, director of VanEck, and Arnab Naskar, co-founder of Stokr, participated in an exclusive interview with The BTC Times. Some in-depth analysis of the fundamental differences between fully backed by U.S. dollars or other reserves) and algorithmic stablecoins (which rely on smart contracts to maintain price stability).
Adam Back explains the difference."The largest and most widely used stablecoins, are 100% collateralized -- even slightly overcollateralized, in the sense that they have dollar cash reserves, different kinds of commercial paper, unlike banks, which are fractional loans, They don't have partial loans. They just have different types of dollars that can be redeemed with different short-term maturities.
A so-called "algorithmic" stablecoin is some kind of smart contract trading bot that takes one or more assets and tries to create some kind of economic What happens when stablecoins become chaotic and undercollateralized."
A core theme of the discussion was to clarify that Terra’s algorithmic stablecoin UST and Tether’s collateralized stablecoin USDT are not the same thing, nor are they related in any way. Many individuals and media outlets seem to conflate the two.
Adam Back clarifies this confusion simply and directly:"UST is US-Terra and has absolutely nothing to do with Tether’s stablecoin USDT"。
Tether CTO Paolo Ardoino explained further."We have seen a lot of speculation, it is likely to be the same group of people or people who really reported the same idea-they tried to bring down Tether, but there is a D in the difference between our name and UST, D stands for Dollar, This is very different, so UST is completely different from USDT."
VanEck director Gabor Gurbacs also added that for Tether and USDT,"If you go to the Tether website, you can see that the asset is backed by cash equivalents and a short-term portfolio that is easily liquidated at scale. Hundreds of billions of dollars can be audited very quickly without significant market impact. This is not the case, for example, with an algorithmic stablecoin pegged to another cryptocurrency"。
Samson Mow pointed out when discussing the real-world use cases of Terra’s UST versus Tether’s USDT."I think it's important to let people know the difference because UST/Terra was born in the DeFi Web3 narrative where you get crazy annualized percentage returns (APY) and you just bet on various things to Earn more of these volatile things. But for Tether, it is really used as a currency. Many people around the world use Tether, such as users in Latin America. For example, Tether is widely used for cross-border trade in Asia; or in Dubai, Tether is used to buy houses. instance of . Most real estate companies accept USD via bank wire or USDT. So there's a real usage scenario behind Tether that's missing from some of the other projects, and I think that's where people should focus."
None of the speakers seemed surprised by the events of Terra's UST. Adam Back explains the root cause and warns about Terra/UST's partial reserve approach."Let's assume some investors come up with several times what they put in early. Now the system is more piecemeal, but you know, while it's growing, the price of LUNA is going up. People buy LUNA, they speculate, this project looks good, right? They are making a profit while the price of LUNA is going up, they use some of the LUNA to actually lower the rate, thus creating a ponzi scheme, they use some of the increased LUNA value to pay the liquidity mining platform to raise the rate to 20 % - actually lower - to motivate more people to join. So things look fascinating until the drums stop and the sickle swings at the leeks, this is the drumming MLM scam"。
Samson Mow summed up Terra's debacle succinctly."It was bound to implode eventually, and I think it just happened in a more spectacular way than most expected."
In summary.
● UST and USDT are different and have nothing to do with each other.
● UST is an algorithmic stablecoin operated by Terra, and USDT is a collateralized stablecoin operated by Tether.
● Terra's UST has lost its peg to the US dollar and can no longer be redeemed at a 1:1 price.
● Tether's USDT remains pegged to the U.S. dollar, and each USDT can be exchanged for 1 U.S. dollar.
You can find more information on their website:https://tether.to/
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