Thread by @ThyBorg_

A death spiral isn't the most likely scenario for $UST. Looking at the design of the Terra protocol and the economic incentives at play, the odds are $UST recovers. The why & how in this thread 🧵

The Terra protocol is valuable for two reasons:
- it controls the supply of the n°1 decentralised stablecoin
- it's an interoperable smart-contract blockchain built on Cosmos

While the trust in the stablecoin is at an all-time low, the Terra blockchain continues to host some of the best decentralised applications DeFi has to offer e.g @mars_protocol, @@astroport_fi, @TeamKujira etc.

Not only that, but @stablekwon and the TFL team went out-of-their way to give it real-life utility and break out the closed loop of DeFi protocols simply serving each other. I'm talking about Terra apps like @alice_finance, @kashdefi, @kado_money and many more coming up

The fact that the Terra blockchain processes all these transactions (about 600k per day according to @pedroexplore1) w/ fees paid in $LUNA / $UST makes it valuable. The market is unfortunately pricing that value differently w/ Bitcoin at 30K than at 70K..

https://twitter.com/pedroexplore1/status/1523769818448809985

.. but it wouldn't make sense to price it at zero, or at the very least it shouldn't stay there long.

The L1 is clearly makes Terra very different from all its unfortunate predecessors

With that mind, here's how it should play out:

First $UST stabilises somewhere, possibly lower than it is today. At some point all the weaker hands have sold, the most loyal supporters remain, and $UST finds a bottom.

This process will be greatly facilitated by the LFG stability reserves and the strong hands of the powerful Terra backers (Jump, Delphi, Hashed etc.)

With $UST still under 1$, arbitrageurs will be able to sell $LUNA for profits - the whole process is well explained by @larry0x here

https://twitter.com/larry0x/status/1420523881530630145

Obviously that means $LUNA's price continues to drop significantly, but since we've established that the Terra protocol remains valuable, the peg should be recovered.

In fact this is exactly how it played out last May, and the whole thing took about a week. Given the current market and macro conditions, it's reasonable to expect that it might take a little longer this time

https://twitter.com/ThyBorg_/status/1523772606238785537

With $UST back at 1$, things will start to look brighter for $LUNA. It might take some time (and potentially some strategic shift for the reserve) to rebuild trust, but TFL is building on a very dedicated community & a thriving ecosystem, so I'm betting on a success story

While Terra is in the news a lot these days, I'm covering the entire #Cosmos ecosystem through educative & digestible threads on governance, airdrops, tokens, teams & projects. If that sounds interesting, you may consider re-tweeting this & giving me a follow @ThyBorg_✌️