Leading stablecoin Tether (CRYPTO: USDT) saw its value fall as low as 95 cents — possibly a price not seen since 2017 — after Wednesday’s collapse of TerraUSD (CRYPTO: UST) and its native protocol Terra (CRYPTO: LUNA) spurred fears of stablecoin instability.
What Happened: Tether’s value dropped by about 5% on Thursday, as shown by market data, which follows the collapse of the TerraUSD stablecoin so closely that it is most probably a consequence of fears it may face a similar fate.
Still, the two stablecoins in question work on two completely different premises and Tether cannot fail for the same reason TerraUSD lost its peg to the United States dollar.
See Also: Is Terra (LUNA) Dead?
Tether promises that each USDT token is backed by $1 in a bank account. Of course, with those reserves being centralized and private, the best we can do is trust Tether and its auditors to be stating the truth; its bank balances are not publicly visible on a blockchain.
This is suboptimal and the dangers of such an approach were clearly shown to the world in mid-October 2021, when the U.S. Commodity Futures Trading Commission hit Tether with a $41-million civil penalty …
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