Thread by @bobbyong

Algorithmic stablecoins have been going through rapid growth and innovation in the past year. Today, let's take a look at UST, a stablecoin by @terra_money, now the 5th largest by market cap and its mechanics.

Our analyst @NeBB399 prepared a report on UST.
A thread below 👇👇

Since UST's genesis in Sept 2020, it has grown to $2b in circulation. To put things in perspective, Tether is 30x larger with $60b in circulation. UST's growth has been strong and it is larger than other stablecoins such as TUSD, PAX, sUSD, and many more.

Unlike other stablecoins, UST does not hold collateral and is issued when traders burn LUNA. It maintains its peg via arbitrage. When 1 UST < $1, UST holders may exchange 1 UST for $1 worth of LUNA, and vice versa. LUNA's supply expands and contracts with UST's issuance.

Terra is a native blockchain that is a part of the Cosmos ecosystem and utilizes Proof-of-Stake. There are 100 validators securing the network and validators have to stake their LUNA or have LUNA delegated to them. Staked LUNA requires 21 days to be unstaked.

UST has held its peg relatively well even with the recent market crash which saw LUNA went from $22 to $4.30. Many other algorithmic stablecoins (such as ESD, DSD, BAC, etc) have lost their pegs a long time back.

We believe that UST has been successful because of two main reasons:
- LUNA validators help stabilize the UST peg
- Real demand for UST

UST is not issued as a standalone stablecoin on an existing blockchain but is a core component of the Terra blockchain. LUNA validators cooperate together for security and stability as they have invested significant resources. The 21 days lockup period also helps with stability.

But more importantly, and this is where most stablecoins don't succeed, is the use-cases of UST. Terra has an entire ecosystem built facilitating demand for UST. Projects such as @mirror_protocol and @anchor_protocol spur UST demand. It also generates demand in offline channels.

If you are interested in reading the full 18-page report written by @NeBB399, click on the link below:
gcko.io/ust-by-terra

Benjamin also prepared a thread summarizing his report too:

https://twitter.com/NeBB399/status/1402887553498304516

Disclosure: I don't currently hold any LUNA position because I'm still waiting for @FTX_Official to support Spot trading. FTX only supports Perpetual trading now.