Understanding Tether’s Peg and Reserves and How They Work
- How to maintain Tether’s stability.
- Tether’s reputation and transparency.
- Financial reserves of Tether are solid, cautious, and liquid.
Given that Terra’s peg has fallen, it’s reasonable to wonder what prevents Tether (USDT) from following the same path.
USDT and Terra utilize distinct designs, mechanisms, and collateral. Terra was a computable stablecoin that wasn’t fully collateralized. It includes a variety of stability-inducing mechanisms, but they all failed in the end.
USDT is fully collateralized, with no credit risk. Each USDT can be exchanged for dollars through Tether, ensuring that when the price falls below $1, investors can acquire USDT at a discount and redeem them with Tether to make a profit.
During periods of high market volatility, the price of USDT might drop below or exceed $1. This does not imply that the peg has been broken. It indicates an increased level of liquidity than what is available on the order books of that exc …