Terra’s stablecoin, UST, has overtaken DAI, its stablecoin counterpart developed by MakerDao, the industry’s oldest decentralized stablecoin, climbing to fourth place in terms of market capitalization. Terra, a layer 1 smart contract-enabled network created with the Cosmos software development kit, launched UST in September 2020. Terra’s ecosystem includes the LUNA governance token, which is now the 4th largest layer 1 blockchain. By topping DAI, UST has now surpassed DAI as the most popular ‘decentralized stablecoin,’ or one backed by cryptocurrencies rather than fiat assets. UST currently has a market capitalization of $9,216,965,278, while DAI has a market capitalization of $8,969,084,150. Here is everything you need to know about the stablecoin.

History

Terra, the company behind TerraUSD, was founded by Do Kwon and Daniel Shin in April of this year. They launched TerraUSD on Bittrex Global on September 12, 2020. TerraUSD has been a huge success since its launch, outperforming competitors like Gemini’s GUSD and Paxos’ PAX, which are both backed by fiat money kept in real banks and subject to issuer control.

Terra, TerraUSD’s native blockchain, is Terraform Labs’ creation. The Terra Alliance, which comprises of 16 e-commerce enterprises scattered across East Asia, owns the latter. Do Kwon and Daniel Shin, the company’s founders, are both accomplished professionals. Daniel Shin is a talented entrepreneur and economist. Do Kwon is a former Microsoft Corp (NYSE: MSFT) and Apple Inc (NYSE: AAPL) software developer who has founded other firms such as TMON and Fast Track Asia.

What is TerraUSD (UST)?

UST is a decentralized, scalable, interest-bearing, algorithmic stablecoin with a variety of functions. It is particularly well-known for its monetary policy, which is largely endlessly expandable. Since its inception in 2020, the stablecoin has matured into its position as the ultimate scalable stablecoin. With the growing popularity of stablecoins, it became evident that the majority of them are not truly scalable. As a result, a stablecoin like TerraUSD was required. It was supposed to take on DAI, the market leader in stablecoins. It provides a scalable experience to the DeFi sector, despite the fact that many traditional chains have serious scaling concerns.

How it Works

Let’s say you plan to mint $100 worth of UST—which is worth 100 UST at the peg—you’ll need to exchange an equivalent monetary quantity of LUNA tokens in order to mint the UST. Terra will then burn the tokens you supplied. So, if LUNA costs $50 a coin, the algorithm says you’ll need to burn 2 LUNA to get 100 UST. Terra formerly just burnt a fraction of the tokens issued, but with the Columbus-5 update, Terra now burns all of them.  Terra tokens can also be used to mint LUNA. Burning 100 UST would be required to mint $100 of LUNA (2 LUNA). Even if the market price of UST isn’t $1 per token, the minting conversion rate regards 1 UST as $1. TerraUST’s price stability remains due to this exchange mechanism.

Pros

  • TerraUSD is highly scalable and offers various innovations that other stablecoins do not have
  • TerraUSD has experienced success from its launch
  • The association with Terra and LUNA further provides TerraUSD with credibility
  • TerraUSD also incorporates yield-bearing and interchain technology

Cons

  • There is a lot of competition in the field with new projects being launched frequently, each incorporating existing and new features in a different way

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