Terra's Stable Coin UST Challenges for Top Spot in 2022
Crypto Currency stable coins have been growing in popularity ever since the launch of Dai a product created through MakerDAO in 2017 as the Cryptoshpere's first ever stable coin through it's collateralised debt position. Which enabled crypto currency investors to lock their funds in a MakerDao Vault in return for Dai which would mint or buy back and burn Dai in order to maintain the peg.
This in turn was the beginning of decentralised finance which is a popular investment option today for many seeking to earn yields on their holdings. The product was so successful that 60% of the first $US1 Billion raised in Decentralised Finance was accounted to MakerDAO Source
Battle of Stable Coins
Since 2017 a number of Decentralised Finance protocols have attempted to create their own pegged stable coins tethered to a range of different international currencies.
At current the most popular form of stable coin are tokens pegged to the United States Dollar with the most successful being Tether, USDC and BUSD which are available on most block chains. However, unlike MakerDAO that maintained Dai's peg through Collateralised Debt Tether, USDC and BUSD maintain their pegs through real world assets.
It was long believed and promoted that for every Tether minted it was being backed by $US1 dollar in fiat which came to a head when on 25 April 2019 the New York Attorney General Letitia James obtained a court order to investigate iFinex Inc which operated the exchange Bitfinex and owned Tether. The investigation was called up when $US850 Million went missing source
In what was first perceived as fraud was actually quite the opposite, as it turned out the stable coin was not backed 1:1 and instead held a large range of municipal debt, bonds and other forms of investment. Unfortunately for Tether there wasn't enough funds available to maintain the peg and had every Tether holder sold the stable coin would have collapsed and a lot of people would not have been able to get their money back source.
Similar issues have been found with other stable coins currently in circulation which is why Governments are calling for regulation and also looking at going down the path of creating their own stable coins called Central Bank Digital Currency. The Current Stable Coin market is valued at $US130 Billion and if there isn't enough capital to sustain that or people begin to "dump" their stables this could have broader impacts on the economy source
CBDC's and the Banking Sectors Reluctance to Develop their own
At a recent G7 meeting of the wealthiest nation leaders it was discussed that governments should issue their own form of stable coins referred to as Central Bank Digital Currencies (CBDCs). The Biden Administration is pushing to regulate stable coins to only be issued by insured banks source
The focus is to enable faster and cheaper global transactions but this stance has come under fire from many financial sector leaders from banks to Reserve Banks even the US Federal Reserve whom states CBDCs do not solve a problem as no problem exists to be solved. In fact the Fed. Reserve wants the private sector to continue to develop the sector and perfect a stable coin on their own. Many banks whom have currently undertaken research all state the same thing that CBDCs are costly and host significant risk source
UST the Shimmering Algorithmic Stable Coin
Terra Network has further enhanced the way Stable Coins are maintained and retain their "peg" with their own algorithmic stable coin called UST. The stable coin is tethered to the networks native token Luna and to mint new UST it involves burning the networks reserves. 1 UST will always be worth $US1 worth of Luna.
The token also has the added benefit that the more it is in demand the more it drives the price of Luna up. Arbitrage options are also available within the Terra Station where participants can support maintaining the peg by swapping UST for Luna for a profit in low demand times and swapping Luna for UST for profit in high demand periods source
Although not confirmed an article was published that reported JP Morgan currency strategist, Nikolaos Panigirtzoglou stated that Terra's UST minimizes volatility and is suitable for cross chain payments source
It is irrelevant if true or not as Terra has continued to grow on platforms as it is a cross chain capable stable coin and the more platforms it is available on the higher Luna value grows. Terra continues to further drive their stable coin with Binance and Huobi the latest to offer UST source
Furthermore, UST has advanced into e-Commerce and the token is able to be used with Chai and MemePay and has over 2 Million active users currently paying for items from merchants in Korea and South East Asia. It is only a matter of time before more payment options are available and we can see the demand for UST continue to skyrocket source
With that in mind and the current trajectory of TerraLABS I think we will see UST dominate and become the #1 Stable coin in 2022 and possibly beyond.
Image sources provided supplemented with Canva Pro Subscription. This is not financial advice and readers are advised to undertake their own research or seek professional financial services.