Category: TerraUSD

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Bitcoin Crypto News Terra TerraUSD

UST Stablecoin Loses Peg, LUNA Drops 56% in a Day

Terra USD (UST), the world’s largest and most controversial algorithmic stablecoin, lost its peg to the US dollar this past weekend which has continued into the week, causing LUNA to tumble by as much as 56 percent in a day.

LUNA US dollar price (7 days). Source: CoinMarketCap

UST Tokenomics Explained

UST relies on LUNA to keep its price pegged to the US dollar via a set of on-chain mint and burn mechanisms. In brief, it works as follows:

Terra maintains UST’s peg of USD through an elastic monetary policy enabled by its dual, UST-LUNA token model. When the value of a unit of UST is above the USD peg, users are incentivised to burn LUNA and mint UST. When the value of a unit of UST is below the USD peg, users are incentivised to burn UST and mint LUNA. During times of UST contraction, LUNA valuation decreases, and during times of expansion, it increases. LUNA is the variable counterpart to UST. By modulating supply, LUNA’s valuation increases as the demand for UST increases.

Terra burn/mint mechanism, Messar

What Happened?

The de-pegging appeared to commence shortly after a series of significant withdrawals on the Anchor Protocol, a lending market offering high yields to users who deposit UST:

Over the period, Anchor’s total UST deposits reduced by 17 percent from US$14 billion down to US$11.2 billion:

In addition, a large amount of UST was also withdrawn from Curve, a decentralised finance (DeFi) protocol allowing users to swap between stablecoins. There was also evidence of a single wallet dumping US$85 million of UST on ETH and US$108 million on Binance:

The initial depeg was seemingly defended by Jump Capital, who earlier this year bailed out victims of the US$320 million Wormhole exploit. However it didn’t stop there as overnight, UST’s peg continued its freefall, reaching as low as 0.73 to the US dollar on Binance at the time of publication.

In response, the Luna Foundation Guard has deployed some of its BTC and UST reserves, although it claims that it hasn’t been sold but rather lent to market makers:

There are a lot of moving parts to this story and the saga is clearly far from over. We’re seeing UST undergo a massive crisis of confidence and at this stage it’s too soon to tell whether it will recover. Current signs are ominous and if UST fails, it’s likely to spread contagion throughout the broader stablecoin market.

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DAO Stablecoins TerraUSD

NEAR Protocol Launches Decentralised Stablecoin ‘USN’ to Compete with UST

The highly anticipated decentralised stablecoin USN has launched on the Near protocol with Decentral Bank, an independent team, taking the lead in the stablecoin initiative:

USN Stablecoin Goes Live

USN is a stablecoin designed in similar fashion to TerraUSD (UST) and can be minted by depositing NEAR tokens, the Near blockchain’s native crypto asset, as collateral. USN is led by Decentral Bank, a decentralised autonomous organisation (DAO), in collaboration with Proximity Lab, a DeFi-focused team in the Near ecosystem. USN does not pay as high a yield as previously thought, but still offers a 10 percent annual yield from Decentral Bank.

Additional Stability for USN

The Decentral Bank DAO will have a few stability mechanisms to support USN’s dollar peg, with the first being an arbitrage system that will try to ensure that the USN stablecoin trades around one dollar’s worth of NEAR tokens. The second stability measure is a “reserve fund” made up of NEAR and USDT tokens held by the DAO treasury. It is still unclear how much will be spent on this fund:

Stablecoins Should Be on the Lookout for TerraUST

In March, Terra co-founder Do Kwon outlined plans to buy US$10 billion in Bitcoin, which had a very bullish impact on the price of BTC. TerraUST also recently became the third-largest stablecoin, outranking Binance USD.

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Crypto News Stablecoins TerraUSD

Terra UST Flips Binance USD to Become Third-Largest Stablecoin

Decentralised algorithmic stablecoin TerraUSD (UST) seemingly can’t help but make headlines these days. Most recently, it surpassed Binance USD (BUSD) to become the third-largest stablecoin by market capitalisation (market cap):

UST Making Waves

For the Terra team behind UST, it’s been a busy 2022 thus far, characterised by a string of bullish announcements that have thrust UST into mainstream consciousness.

Its youthful founder recently announced a program to buy US$10 billion in bitcoin to backstop the stablecoin and guard against extreme volatility that could undermine peg parity.

Terra Has A Huge Potential to Become The Second-Largest Bitcoin Holder, according to Do Kwon - CoinCu News
Do Kwon of Terra Labs, UST founder. Source: Coincu

Shortly after, Crypto News Australia reported that its market cap had soared some 700 percent in six months, surpassing Circle’s USD Coin (UDSC) as the fastest-growing stablecoin. In fact, its market cap has grown by 15 percent in the past 30 days alone:

Devil is in the Detail

When looking at the market cap for the top US dollar denominated stablecoins, it’s evident that BUSD has been marginally surpassed:

Top 7 stablecoins by market cap. Source: CoinGecko

However, eagle-eyed UST fans would be wise to temper their enthusiasm, as 24-hour volume reflected in the chart above demonstrates that BUSD still has almost five times the volume.

Compared to the incumbent, Tether (USDT), UST’s market cap is still five times smaller, not to mention that its volume remains at least 65 times lower.

However, when one looks at UST’s meteoric rise over the past six months (below), it’s self-evident that it is shaping up to become the fastest horse in the stablecoin race.

To be sure, UST isn’t widely embraced by the broader digital asset community. Despite the promise of censorship resistance, most criticism is directed against the stablecoin’s burning mechanism, which is necessary to maintain a 1:1 US dollar peg.

It’s too early in the decentralised stablecoin experiment to speculate how things will play out. For now, the only thing that can be said with confidence is that UST appears to be gaining ground on its rivals.

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Bitcoin Crypto News Terra TerraUSD

Terra Founder Outlines Plans to Buy $10 Billion in BTC

Three weeks ago, the Luna Foundation Guard announced it would be buying US$1 billion in bitcoin to help restore “peg parity” between its decentralised stablecoin TerraUSD (UST) and the US dollar.

Terra’s founder has now decided to go one step further and declared his intention to acquire up to US$10 billion in bitcoin:

Refresher on UST and BTC

For those unclear as to how bitcoin fits within the context of a decentralised stablecoin such as UST, it’s worth going back to an earlier statement by the LFG Foundation:

As an algorithmic stablecoin, UST’s peg is maintained by a series of open market operations, arbitrage incentives, and countercyclical levers within the Terra protocol to offset market forces pushing the UST peg above or below one USD. LUNA, Terra’s reserve, staking and governance asset, retains an elastic supply to help neutralise directional market pressures impacting the peg.

LFG Foundation announcement

In short, bitcoin is used to restore the UST’s peg parity to the US dollar at times when there are protracted market sell-offs.

Terra Founder Reveals Plan Details

In a Twitter Spaces conversation with renowned crypto troll, Udi Wertheimer, Terra co-founder Do Kwon revealed plans to back UST with bitcoin:

Haven’t been following up with the exact numbers ’cause transactions we generally do this over OTC, but the current clip that we have to buy big coin is about $3 billion [referring to bitcoin] and we will add to that.

Do Kwon, Terra co-founder

He added that “out of that 3 billion, most of it we haven’t bought yet”. Do Kwon went on to describe the move as a “new monetary era of the Bitcoin standard”:

Naturally, there was a lot of excitement across crypto Twitter:

However, some of the more experienced market participants, including Bitcoiner Adam Back, had more questions. He asked, “Where is the $10 bil coming from?”, to which Do Kwon responded:

It’s not 10B today – as UST money supply grows, a portion of the seigniorage will go to build BTC reserves bridged to the Terra chain. We have 3B funds ready to seed this reserve, but technical infrastructure (bridges etc) is still not ready yet.

Do Kwon, co-founder of Terra

Details remain somewhat muddied and it’s not clear whether even Do Kwon has all his proverbial ducks in a row, having conceded at the end of the Twitter Spaces conversation: “I said more than I shoulda”.

Initial Acquisition More Like $3 Billion

While plans are to acquire US$10 billion in total, as noted by Do Kwon the initial acquisition will be US$3 billion. Eagle-eyed on-chain analysts have already seen evidence of buying with US$125 million already bought, and another tranche of US$125 million imminent:

If Terra’s plans go through as intended, it would become one of the largest bitcoin holders, more so than every corporate outside of MicroStrategy with its 125,051 BTC stash.

Whatever one’s thoughts are on algorithmic stablecoins such as UST, or Terra itself, it’s undeniable that using bitcoin as a tool to maintain peg parity is a unique approach that remains untested. At the very least, it introduces some excitement at a time when the market appears to be in a sideways consolidation phase.

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Crypto News Stablecoins Terra TerraUSD

Luna Foundation Raises $1 Billion as BTC Reserve for Decentralised Stablecoin

The Luna Foundation Guard (LFG) was recently formed to support decentralisation, economic sovereignty, and growth of the Terra ecosystem. Now, in an unexpected turn, it has announced that it has successfully raised US$1 billion to acquire bitcoin to underpin its decentralised stablecoin, UST:

A Move to Restore ‘Peg Parity’

TerraUSD (UST) is a decentralised and algorithmic stablecoin of the Terra blockchain, pegged to the US Dollar. In contrast to centralised stablecoins such as Tether and USDC, algorithmic alternatives do not use collateral to maintain their price. Instead, they maintain their peg by relying on complex market incentives, which LFG describes as follows:

As an algorithmic stablecoin, UST’s peg is maintained by a series of open market operations, arbitrage incentives, and countercyclical levers within the Terra protocol to offset market forces pushing the UST peg above or below one USD. LUNA, Terra’s reserve, staking, and governance asset, retains an elastic supply to help neutralise directional market pressures impacting the peg.

LFG Foundation announcement

One of the common criticisms of algorithmic stablecoins is their reflexive nature during extreme volatility, where the arbitrage incentives to bring the peg back to parity can potentially deteriorate. With the LFG announcement, the bitcoin will serve to provide an additional avenue to maintain the stability of the peg in contractionary cycles that reduces the reflexivity of the system. As LFG noted:

The reserve assets can be utilised in instances where protracted market sell-offs deter buyers from restoring the UST peg’s parity and deteriorate the Terra protocol’s open market arbitrage incentives.

LFG Foundation announcement

LFG added that while initial plans were to acquire bitcoin, it would “expand to other major non-correlated assets within the market moving forward”.

Mixed Reactions, of Course

The announcement was met with both excitement and derision, a feature expected of noisy social media platforms such as Twitter:

Given the increased scrutiny on stablecoins in the US in particular, and the willingness of issuers to censor addresses on request, the demand for decentralised stablecoins is self-evident.

It remains, however, to be seen whether LFG’s strategy will foster greater trust in UST. Initial signs are positive, but it is probably too soon to tell.