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Tether shows reserve backed stablecoins are stronger than algorithm backed stablecoins

Why a discussion on different stablecoins is necessary On Thursday,...
crypto-reports

By crypto-reports

 

May 16, 2022

Why a discussion on different stablecoins is necessary

On Thursday, Tether sunk below its usual $1 price point to $0.95. This occurred as the coin saw $3 billon in withdraws, most likely due to investors panicking over the UST (Terra's stablecoin) crisis. However, Tether quickly rebounded back to its $1 price. The quick rebound can be attributed to tether’s commitment to “[peg] 1-to-1 with a matching fiat currency and are backed 100% by Tether’s reserves”, according to Tether's official website.

Unlike Tether, UST has continued to fall alongside LUNA, and UST has hit lows around $0.15. Creating a potential upside of 6.7x for those willing to take the risk in UST. That is quite a hefty upside for a so-called stablecoin.

Difference between Tether and UST

The difference between Tether and UST is that UST did not rely on reserves to stabilize the price. Instead, UST relied on a complex code and relationship with LUNA to keep UST pegged at $1. As the crash has shown, this method does not work. Oftentimes, the crypto space is filled with individuals looking to get rich quickly and do not stress test their products.

Reserve backed stablecoins are the winners

The difference in the two above stablecoin charts speaks for itself. Investors looking to exchange their cryptocurrencies for stablecoins should stick to Tether as it has proven itself a head above its competitors. This does not mean that Tether is a risk-free cash alternative, but it is the most well-known and established option in the market.

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