Since my last post, I decided to try to understand more about Cryptocurrency. So I went on to ask my friend, whom is definitely more knowledge in the field of Cryptocurrency than me, a question that has always been on my mind:
"Which is the cryptocurrency that will fulfill its potential in the mass market?"
He went on to write a whole article on this and I decided to share it on my blog.
Do note that I know cryptocurrency is a subjective topic and depending on how one interpret this question, everyone will probably has a different choice and different opinion.
Thus, I will suggest that everyone reads with an open mind. I read twice in order to understand it.
Guest Post: The Decentralised Stablecoin, UST.
No one uses Bitcoin, Ethereum or Solana to pay for things. But people do use stablecoins like USDC & USDT to pay for things. Let’s discuss a stablecoin that’s aiming to become the best.
$UST, Terra USD is project that aims to build a better stablecoin, or a better US Dollar. The governance token LUNA is paired with UST and is frequently discussed together. UST is an algorithmic stablecoin, pegged to $1 USD, through a variety of mechanisms between it and LUNA. Its algorithmic and decentralized nature means it is controlled by the decentralized group of LUNA hodlers, instead of a centralized authority like the US’s FED.
Both UST & Luna were both created by the Terra Foundation, UST being the stablecoin pegged to the USD, while Luna being the governance token that controls the Terra Network. Both tokens are available on the Terra network and can be used in protocols like Anchor Protocol using the Terra Station wallet.
Centralised Control Over Stablecoins
Stablecoins today are collateralized by a central authority, such as Tether (USDT) and Circle (USDC). This introduces regulatory or centralization risks with these entities. For example, except for Tether/Circle’s Reports & Audits, we can’t know exactly what is in their reserves to back their stablecoins. This has created lots of Fear, Uncertainty & Doubt (FUD) around Tether amidst allegations that their stablecoin isn’t as well backed as people think. Crypto is about tackling centralization, so UST gained popularity as a decentralized stablecoin without the reliance on one entity like Circle.
DAI attempts to solve this by allowing people to mint DAI by depositing crypto-assets, on-chain. However, this is weakened by the fact that most of the assets used to mint DAI is USDC. The decentralized nature of UST makes it harder for the SEC to clamp down a single target like Circle or Tether.
Algorithmic or Collateralized
Terra is Algorithmic in nature, relying on a burning/minting mechanism with its governance token, LUNA to maintain its peg. Essentially, you can burn LUNA when UST above $1, or Mint Luna (and burn UST) when UST is below $1. This acts as countercyclical forces to balance UST’s peg, utilising LUNA’s price/supply.
As UST grows in market cap and be used more around the world, more UST must be minted from excessive demand, this action in turn burns LUNA. Simply put, for more UST to circulate, Luna must be burnt, thus driving the price of LUNA up. Longing LUNA is longing the idea of a world which everyone uses UST as much as possible, where UST is widely used. UST Circulation Up = Luna Up.
Thanks to the Algorithmic nature of $UST, Terra does not need to lockup $1 worth of fiat assets to increase the circulation of UST by $1. Instead, it burns LUNA, making holders of LUNA richer.
However, the downside risk is in the event of a depeg, LUNA will be minted, causing more LUNA to be in circulation and prices to drop. Fortunately, UST’s widespread adoption and arbitrage mechanism, in combination to a large cult of LUNAtics, have kept this risk minimal. The algorithmic nature of UST allows it to scale indefinitely without reliance on centralized entities.
Fulfilling its Purpose as “The World’s Stablecoin”
To truly achieve its purpose as the world’s decentralized stablecoin, we need two growth drivers for UST. We need investment opportunities to store idle UST, and the ease of spending it on physical items like e-commerce sites. This would vastly promote growth for UST, and growth for LUNA’s price.
Investment Opportunities: Anchor & The Terra Blockchain
Out of the 7.18bil $UST floating around, 2.1bil $UST is deposited into Anchor Protocol, earning a yield of 19.5%. Anchor is a simple deposit account, that gives high APY and has become a core of yield strategies using Anchor.
Anchor helps dampen the effects of a UST depeg, by attracting users to purchase UST and stake it for 19.5% APY, while also improving the attractiveness of Terra USD during a bear market, offering 19.5% APY when yields are starved elsewhere. This attracts capital into UST, supporting Luna’s price when it is needed most.
Additionally, Anchor allows you to borrow UST against locked Luna, and then redeployed elsewhere to generate returns. Thus, many users lock up even more Luna, reducing the circulating/liquid supply of Luna.
The prevalence of Anchor UST (aUST) as an investment tool elsewhere (Mirror etc) further promotes the locking up of Luna & Depositing of UST into Anchor’s platform. While some have questioned the sustainability of the 19.5% APY, Lunatics are confident in it, to the tune of 2bil USD.
UST as a Medium of Exchange
Utilising UST to pay for real life goods & services would be the ultimate endgame for any stablecoin. UST achieves this by projects such as Terra Cards and Subterra Protocol.
Processing a credit card transaction today takes a few days, and Visa/MasterCard takes a 3% fee. With UST, it is possible to implement and take <10seconds for the transaction to be confirmed on the blockchain, with a fee of about 0.5%. However, due to the lack of Terra debit cards, this is still a dream for now.
However, a Singapore project called Terra Cards worked around this by generating gift card codes based on UST deposited. Means you can send UST to their address and get a Gift Card Code for platforms like Amazon or Shopee and spend that on their website instead! Ingenious workaround, a sign of things to come.
Subterra aims to utilize that to automate recurring transactions to pay for things like Spotify or Netflix. This, combined with yield opportunities allows users to eventually generate yield to handle recurring expenses. Merchants can also access dashboards to assess their business receivables and collect capital efficiently and quickly.
Overtime, we expect more merchants and sites to adopt the UST payment method, further tying in its attractiveness as a stable coin. Imagine generating 19.5% on your stables, without exposure to market risk, and draw from it to make your daily purchases.
How do we benefit the most from this? We can benefit from the growth of UST by longing the Governance token LUNA and staking it with validators. This allows you to get airdrops of Terra projects, while receiving a staking yield on it.
Alternatively, explore the world of TeFi, learn about UST and all the investment opportunities to generate yields on it. What are you waiting for? Come join us to learn more.
This Guest Post is written by Soju from Metafrens, a community discord of like-minded Crypto users, whether it is DeFi or Play2Earn players. Learn more and participate at: https://discord.gg/GwmgGhACF7
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