After the collapse of Terra USD, all stablecoins were put to a great test. While investors panicked and sold their stablecoins, the projects supported 1 to 1 were able to survive.
He published a new article in Tether, which frequently informs investors after the collapse of the UST, explaining the reasons behind their not losing their fixation to 1 dollar despite the hard exit of 10 billion dollars. In the article, which described such sudden sales waves as a stress test, it was stated that Terra could not pass this test successfully.
“Stress tests are an important way to understand how fragile a financial system is and occur when there are significant fluctuations in the markets. The collapse of Terra can be thought of as the failure of the Terra stablecoin system to pass a market-imposed stress test. De-Fi protocols reveal market volatility. When it comes out, they face similar challenges, and not all of them pass the test."
The article showed that the biggest factor behind the resilience of USDT is that it is fully backed by its reserves.
“It has been proven time and again that USDT can withstand market volatility, crashes and redemptions of funds that can cause many other protocols and especially banks to fail.
How is USDT more durable than all these other institutions?
The answer is simple: USDT is fully supported.
All the difficulties faced by other protocols and banks are related to the fact that reserves are not fully supported.
If any financial system does not have sufficient collateral to support its outstanding liabilities, it risks collapsing in case of too many withdrawals or if its current collateral falls in value.
However, if a system is fully supported, there is no such risk.
As long as $1 of collateral is available for every $1 of outstanding liability, the worst-case scenario is to have all liabilities repaid for the underlying collateral."