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EP 58: Analysis of UST (TerraUSD) | Algo Stablecoin on Terra
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TLDR below. This is not financial advice.
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$UST VS $LUNA
$UST is not $LUNA
$LUNA is the native token where users have to stake it to be a validator in the Terra blockchain whereas $UST is a stablecoin. They both exist on the Terra ecosystem but are not the same.
When we talk about stablecoins we classify them into four different categories:
Mechanism: $UST is an algo stablecoin so the mechanism is algorithmic and it has two tokens which are $LUNA and Terra Stablecoin such as $UST.
Collateral Type: It doesn't have any collateral
Peg: It is pegged to one US dollar
Collateral amount: It doesn't have any collateral reserve
A lot of people think that $UST is backed by $LUNA but that's not true.
$LUNA is used in the reserve and is used to maintain price stability.
At the same time, $LUNA is not considered traditional collateral. It is 100% algorithmic
When $UST is less than a dollar you take your $UST to go to the Terra network and exchange it for $LUNA and that's how you mint $LUNA and destroy $UST. When you destroy $UST the supply goes down and the value of the remaining $UST goes up.
When $UST is above one dollar and you have $LUNA then you go to the system exchange it for $UST and then you can go to the open market and sell $UST at maybe a dollar and ten cents instead of a dollar but you get it for a dollar so that's how the internal mechanism works to balance the price of $UST because internally they will always value $UST at one dollar. This is an algorithmic system because the value of $UST and the value of $LUNA is determined by outside markets but internally it will always value $UST at one dollar and $LUNA at whatever the price it is.
What Else Did You Miss?
Demand of $UST
Value of $LUNA
The utility of $LUNA
$UST Stats (till March 21)
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It can be said that Terra is making a smart development in the process of building and developing its ecosystem. By offering a stablecoin, which has a very good anchoring mechanism thanks to a reasonable incentive, good stability, and using it directly to the end-users.
It can be said that there is no project that can reach end-users as well as Terra, when most of them focus on Crypto humand.
Thus, the demand for Terra Stablecoin will increase and positively impact the value of $LUNA. In addition, Terra has added incentives for $LUNA Holders, making it even more valuable in the future. This can be said to be a "late birth" project, but it has outstanding power. Let's follow Terra!