Rubbing salt into the wound of DAI, Tether CTO claims its minting mechanism is too risky, USDT can boost DeFi liquidity

Decentralized finance means a financial system that is not controlled by any specific organization or institution. Recently, the Chief Technology Officer of prominent centralized entities in the cryptocurrency industry, Tether and Bitfinex, mentioned in an interview that the USD stablecoin USDT can provide much-needed liquidity and stability to the emerging decentralized finance (DeFi) space.

• Ardoino claims DAI's generation mechanism poses high risks for DeFi
• Tether operates across 7 different blockchain systems

Dark Thoughts on DAI Mechanism Pose High Risks

Paolo Ardoino, the CTO of Tether, expressed concerns about the reliance on other forms of cryptocurrencies to maintain stablecoins' stability, such as using collateral like Ether, which could expose the entire DeFi sector to systemic risks.

Ardoino mentioned, "The algorithm for stablecoins cannot solely depend on the underlying cryptocurrency assets. The DeFi space is a mix of complex financial products, and stablecoins should not be built on volatile asset classes without considering the possibility of them going to zero at any time."

To ensure the continuous growth of the DeFi sector and attract institutional investors, Ardoino believes that risks should be appropriately diversified beyond just cryptocurrency assets:

You can name any form you want; Tether (USDT) is an extremely flexible asset. I think a centrally collateralized stablecoin in USD can provide a "safe haven" for the DeFi ecosystem.

Continued Expansion in the DeFi Sector

Despite dominating the stablecoin market for years, Ardoino believes that Tether must continue to evolve and leverage its strengths. He mentioned that if the EU were to suddenly announce the launch of a global stablecoin, Tether would certainly not be able to compete with it in terms of market value.

It was previously reported that Tether announced a collaboration with the Ethereum lending protocol Aave in early March, marking Tether's first foray into the DeFi sector.

Stani Kulechov, the CEO of Aave, stated at the time:

Tether is one of the fiat onramps commonly used by institutional investors, and integrating with Tether could help increase liquidity in the DeFi space. As USDT is anchored to the dollar and is unlikely to experience significant volatility, it poses relatively lower risks of triggering mass liquidations as collateral for DeFi products.

Due to the sharp drop on March 12th, triggering mass liquidations of MakerDAO's USD stablecoin DAI, some liquidators won auctions with 0 DAI bids, resulting in a financial deficit of approximately $4.5 million. Fortunately, the recent MKR governance token auction successfully resolved the debt crisis.

The remarks made by Tether's CTO mainly criticize the inability of the DAI stablecoin to cope with market crashes through its liquidation mechanism, and MakerDAO also issued a statement regarding the impact of the severe market downturn on March 12th.

It is understood that Tether currently spans across Omni, Ethereum, EOS, Tron, Liquid Network, Algorand, and on March 20th, it announced the upcoming launch of USDT on BCH, making BCH the seventh blockchain project to issue USDT.