Terra's UST is a saviour.
While many cryptocurrencies fell victim to Bitcoin's year-end sell-off, LUNA continued to rise. However, its stablecoin TerraUSD (UST) has received the most attention because it is because of him that the Terra blockchain has risen to second place in DeFi due to the value locked in UST on the Anchor protocol. Therefore, it is crucial to understand the entire purpose of UST compared to other stablecoins.
Investors are more willing to bet on decentralized stablecoins like MakerDAO’s DAI and TerraUSD, so it could be seen as the end of an era. These are so-called algorithmic stablecoins, and they are increasingly being developed on multiple blockchains based on the MakerDAO paradigm (e.g. VeleroDAO’s USDV on the Velas blockchain or TriAngleDAO’s AUSD on Conflux). Their stability is based on using other cryptocurrencies as collateral. Therefore, in the event of a collapse in the price of these cryptocurrencies, more collateral than a stable mint would be required to guarantee the value of a dollar. As a result, Terra's UST was happy with Theter's question.
The mechanics of TerraUSD (UST)
LUNA and UST are undoubtedly the winning combination at the end of the year. In fact, they were inexorably intertwined in victory. Unlike USDT, USDC and BUSD, UST is decentralized. However, unlike DAI, it does not use collateral. In order to cast or manufacture UST, LUNA must be burned. Therefore, the number of LUNAs available decreases as the number of USTs increases.
As a result, the subdued market in the last few weeks of 2021 has resulted in a steady increase in demand. Investing in safe assets is a safe haven for investors. As the number of LUNA decreases, the price of LUNA is bound to rise. This marks the first time the cryptocurrency has entered the top ten, surpassing DOGE and its rival SHIBA. On the other hand, when we sell UST, we burn it. In exchange, we perform the mint equivalent of LUNA, which definitely leads to the opposite process.
However, demand for TerraUSD is expected to continue to outstrip supply for some time. Because UST contains slight changes, maintaining the 1 UST:$1 equivalent requires manual arbitrage intervention. If it's worth $0.97, I can burn UST on the Terra blockchain to regain the equivalent of $1 in LUNA. As a result, I won $0.03. However, I prefer a dollar increase in the value of UST
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