Financial commentator Frances Coppola: Tether is unlikely to suffer a crash similar to Terra

Bloomberg senior commodity strategist Mike McGlone and financial commentator Frances Coppola discuss the impact of last week's Terra crash in a new interview with Cointelegraph.

Financial commentator Frances Coppola firmly believes that algorithmic stablecoins such as TerraUSD (UST) will always be vulnerable to sudden crashes no matter how much the technology improves.

"They can improve their game theory, they can improve their risk assessment, but I think there will always be states in the world that they don't think about," Coppola noted in a discussion with senior commodity strategist Mike McGlone.

Terra's UST stablecoin, which relies on an algorithm to maintain its peg to the U.S. dollar, crashed last week, sparking turmoil in the crypto market.

According to McGlone, Terra’s crash was part of a natural “purge” that occurs in every bear market. According to the analyst, concerns over the stablecoin Tether (USDT), which briefly lost its peg to the U.S. dollar due to Terra’s crash, should not be overestimated.

As McGlone pointed out, Tether had been decoupled briefly in April 2019 when the New York State Attorney General filed a lawsuit against its sister company Bitfinex.

"The market is saying, 'We don't care. This is a better way to trade the dollar,'" McGlone said.

On the other hand, Coppola pointed out that while investors largely redeemed Tether during the Terra crash, other stablecoins such as USDC and BUSD performed as safe-haven assets and thus proved to be more trusted.

Nonetheless, Coppola believes that Tether is unlikely to suffer a crash similar to that experienced by Terra because it is backed by physical assets held in reserves. She noted that in the event of a crisis, Tether would be able to suspend redemptions in accordance with its policies, thereby avoiding massive bank runs.

According to Coppola, the main source of systemic risk in the crypto market is not stablecoins, but crypto exchanges.

"If Coinbase fails, a lot of people could lose a lot of money," she said. “It caused some sort of Lehman moment in the cryptocurrency space, if you will.”

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