Tether CTO: Terra is not a rug pull, but a poorly designed "castle in the sky"

Paolo Ardoino, CTO of Tether and Bitfinex, stated that the Terra (LUNA) project was not intended to be a rug pull, but simply "poorly designed."

Referring to the market collapse of the Terra ecosystem, Ardoino likened the algorithmic stablecoin TerraUSD (UST) to a "castle in the air" that could collapse at any time.

Many in the crypto community have followed a long list of questionable statements/actions from controversial terrform Labs founder Do Kwon, raising questions about his actions. Kwon was also reportedly involved in a previously failed algorithmic stablecoin project called “Basis Cash.”

Commenting this week on the Reimagine Unplugged podcast, a media company focused on Web3 content and activity, Ardoino said Kwon's false self-belief was a big problem:

"I don't know Kwon. But let's just assume he's innocent. He created this project with hubris and thought he was right, and a lot of people supported him, sure, maybe for financial reasons, but essentially , this is not a small problem, this is a poorly designed project, like many projects."

"It's like a castle in the air, it could fall down, but of course he can't say it, or it will fall down faster. Again, I'm very clear, many people are clear to me that this is a bad idea," he added.

Ardoino went on to say that UST had grown too large to maintain its peg because its collateral (mainly Bitcoin at the time, as it tried to build its reserves) was not enough to back the stablecoin, but was still "big enough for the market to move further." Crash."

"They're basically in a chain reaction situation where they have to defend the peg, so they have to sell collateral, and selling collateral causes additional crashes, and those additional crashes prompt them to sell more or collateral, etc. Wait," he said.

When asked how the regulatory landscape for stablecoins might develop, Ardoino suggested that policymakers first need to clearly define the difference between a fully asset-backed stablecoin and one primarily algorithmically backed:

“I think stablecoins first need to be properly categorized, so right now, Terra UST is an algorithmic stablecoin and Tether is a centralized stablecoin. So two different stablecoins with two different guarantees, Two different guarantees and so on."

Cointelegraph reported earlier today that Tether reported a 17% decline in commercial paper holdings of its USDT stablecoin reserves in the first quarter. The company also emphasized that its stablecoin is "fully backed" by $82 billion in reserves, following an $18.5 million settlement with the Office of the New York Attorney General beginning in January 2021. , as part of the reporting required by law.