There has been quite a buzz around UST recently, given its rapid increase in popularity and the fact that it could soon overtake DAI in terms of Market Cap.
UST is one of many stable coins on Terra's Ecosystem, and so any assessment about the validity of UST must be based on an assessment of the viability of the Terra Ecosystem as a whole.
In terms of price, TERRA-LUNA has certainly seem impressive growth in 2021:
TLDR: I'm pretty impressed with the way Terra works - the primary function of the chain is to facilitate low-fee transactions using a range of stable coins pegged to several different fiat currencies, so Stable coins are Terra's thing!
And there's a decent mechanism to fund development of dapps which encourage people to stake and lock up both Terra and the stable coins.
Maintaining the Fiat Peg...
The supply of UST (and other stable coins) and thus the dollar peg is maintained through seigniorage:
If TerraUSD drops below the $1 peg, Terra UST holders will be able to sell 1 UST and receive $1 worth of newly minted LUNA (reducing the supply of UST and getting LUNA for a bargain price, but also meaning the the Luna price will fall).
If UST rises above the $1 peg, LUNA is burned to print more, decreasing the UST supply and increasing the LUNA price, benefitting LUNA holders.
This means that LUNA holders and stakers are soaking up the loss in value if demand for UST drops, and those who stake on the network (which allows such swaps to take place) receive fees as a reward for exposing their LUNA to this (hopefully short term) downward price trend.
When Luna is swapped for UST, some is burned, some goes to a community pool to fund further development on the blockchain.
To my mind it's the impressive array of dapps being built on Terra that make holding UST appealing, and there's plenty of dapps developed on Terra which encourage positive feedback loops which should work well to increase demand for UST and help maintain both the dollar peg and gradually push up the price of LUNA.
The two major dapps seem to be the Anchor and Mirror protocols.
The Anchor Protocol
Anchor Allows you a range of simple options to lock up LUNA and UST and earn:
- You can bond Luna (or ETH)
- You can stake the stablecoin UST for an impressive 20% APR
- You can also pool UST with Anchor's governance token for a 70% return, and the price of that seems to be trending up steadily, with the max supply already printed.
The Mirror Protocol and Links to other chains
If you've ever seen an 'm'Coin such as mBTC or mEth this has been minted on Terra's Mirror protocol, which requires you to lock up UST as collateral in order to print these coins.
You can then use these to stake on various DEFI protocols on other chains, which is a great use case for UST.
But more than this, you can also lock up UST (150% collateral required) stock NFTs... like for Google and Amazon....
I guess you can then just hold onto them, hoping they increase in value faster than UST, but what I like here is the locking up of UST.
Final Thoughts
There are a lot of options on the Terra network which encourage staking of UST, which makes it less likely that demand will suddenly crash.
And it's nice to have an option of a stable coin that's algorithmic rather than (possibly) fiat backed.
The similarities here with HBD aren't lost on me either.
In short, I think it's worth getting not only some UST, but also some (more) LUNA and maybe holding onto the anchor I'll be earning for staking the UST.
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