UST and LUNA collapsed, causing some devastation to the crypto ecosystem. However, contrary to naysayers’ opinions, the ecosystem is still surviving.
UST is considered a stablecoin or a cryptocurrency that is expected to stay at $1 for a long time. However, things aren’t looking good in the cryptocurrency market when such stablecoin can no longer stay afloat.
LUNA, a crypto token that backs up UST, also lost its virtual value. Several charts widely reported the losses of these two prominent cryptos.
The Luna Foundation Guard or LFG is a nonprofit endeavor to stabilize the Terra ecosystem, the one responsible for issuing UST and LUNA. To promote and boost UST, Terra would buy $10 billion worth of bitcoin. While this seems like a confident move, some were not so excited by a stablecoin backed up by bitcoin.
Stablecoins are supposed to be $1, and sometimes they are 1 euro or 1 won. Because of the influential power of the US dollar, stablecoins were created. Stablecoins allow crypto-natives to easily get in and out of the dollar without the need for banks’ approval.
Additionally, stablecoins grease the wheels of the crypto trading volume as well as boost the crypto carousel called decentralized finance or DeFi. Aside from that, citizens who are under totalitarian governments that spark hyperinflation rely on stablecoins.
The Five Stablecoins and What Makes Them Different
Binance USD or BUSD, DAI, TerraUSD or UST, Tether or USDT, and USD Coin or USDC are few of the many stablecoins out there. However, these five represent around $160 billion of value and are considered the largest among the many stablecoins.
USDT, USDC, and BUSD are three stablecoins from centralized entities that own a dollar treasury. These treasuries stabilize each coin so that holders can redeem them for $1.
On the other hand, DAI is collateralized by a diverse portfolio of crypto assets. MakerDAO is considered a decentralized autonomous organization and they are responsible for managing DAI. The stablecoin is collateralized with crypto and not with dollars but it is regarded as overcollateralized.
UST is different from the four stablecoins. It is not collateralized, but it is an algorithmic stablecoin: the Terra protocol and LUNA power UST. When demand for UST is high enough to keep its price at $1.01, the protocol will print some UST to get rid of LUNA. This works like a charm until it doesn’t.
While this is unfortunate for UST/LUNA, it is safe to say that the whole bitcoin ecosystem did not entirely collapse.