As a stablecoin, UST should remain at $1, but there’s more to this coin than stability
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In the ever-increasing world of stablecoins, the TerraUSD coin is just one of many options. But while a TerraUSD price prediction should always be $1, UST still has some interesting features worth investigating. So, what is TerraUSD (UST)? What is TerraUSD used for? And how does TerraUSD work?
A brief introduction to stablecoins
The first thing to know about UST is that it is designed to be worth one dollar, always and forever. The idea behind stablecoins is to address the incredible volatility of many cryptocurrencies. The way prices can shoot up or drop puts off many potential investors, who might otherwise like the idea of cryptocurrencies. On the other hand, crypto enthusiasts cite issues with traditional fiat currencies. The lack of privacy surrounding fiat currencies is one such concern, a collective reliance on centralised financial institutions such as banks and regulators is another. The speed of fiat transactions is something else that comes in for frequent criticism, as well as the high fees applied when sending money internationally.
The idea behind stablecoins is to find a compromise. As the name suggests, these coins have the stability of a traditional fiat currency with the privacy, low costs and speed associated with a cryptocurrency. The UST stablecoin is pegged to the US dollar, which means that it should, ideally, be worth $1 at all times. If you want a TerraUSD price prediction for 2025, it is $1. Ultimately, a TerraUSD coin price prediction can only ever be $1.
As the white paper says: “While many see the benefits of a price-stable cryptocurrency that combines the best of both fiat and bitcoin, not many have a clear plan for the adoption of such a currency. Since the value of a currency as a medium of exchange is mainly driven by its network effects, a successful new digital currency needs to maximise adoption to become useful. We propose a cryptocurrency, Terra, which is both price-stable and growth-driven. It achieves price stability via an elastic money supply, enabled by stable mining incentives.”
UST and LUNA
Terra has, in effect, a dual token system that uses the stablecoin terraUSD (UST) and LUNA to create and stabilise the TerraUSD cryptocurrency. USTs are minted by burning LUNA and can also be swapped for LUNA.
For example, if the UST value goes above $1, the equivalent value of LUNA would be burned, which mints more UST, making it less valuable. Whereas, if the UST price drops below $1, UST coins are swapped for LUNA, making UST more valuable.
This relationship has been likened to that between the Moon and the Earth, as they rely on each other for stability. Burning LUNA coin is essential to this dynamic as it incentivises users by giving LUNA its value and UST its stability.
There is a limit of one billion LUNA coins in circulation; if this number is exceeded, LUNA is burned. This means that a lot of work is going on to keep the stablecoin stable.
It is important to remember that UST is not the same as LUNA, even if both operate on the Terra blockchain.
One thing that UST wants to do is operate in a scalable way in the world of decentralised finance (DeFi). As a blogpost written around the time of its launch says: “TerraUSD is the first decentralised stablecoin that is scalable, yield-bearing and interchain. We are excited to bring TerraUSD to many ecosystems and apps and help DeFi finally scale.”
TerraUSD price forecast
Since it is a stablecoin, there is little value in making a TerraUSD price prediction. This is because, ideally, the coin price should stay the same, around one dollar. In fact, if we take a look at the TerraUSD price history, we will see that TerraUSD (UST) has largely remained at one dollar, give or take a cent or two, all along. The only exception is 30-31 December 2020, when it plummeted to an all-time low of $0.7929. While no doubt alarming for the stablecoin’s holders at the time, this drop was quickly corrected, and the coin was trading flat at $1 by close of play on 1 January 2021.
Therefore, there is not much point in looking at a TerraUSD price prediction 2022, a TerraUSD price prediction 2025, or even a TerraUSD price prediction 2030. Many crypto price prediction sites work via an algorithm, so while you might see a UST price prediction and may even find one where the TerraUSD (UST) price shoots up, this would be down to a problem was with the algorithm – because the TerraUSD price prediction is and always will be $1.
Final points
UST was launched in 2020 by the Terra blockchain and the cryptocurrency exchange Bittrex. There is a strong link between UST and Terra’s LUNA coin. Terra operates under a proof-of-stake model, which means that people get paid based on how much LUNA coin they already hold. The blockchain was founded in 2018 by Daniel Shin and Do Kwon, both from South Korea. As of 11 January 2022, there were 10.53 billion UST in circulation, and the coin had a market cap of $10.5bn, making it the 19th largest cryptocurrency by that metric. In terms of stablecoins, it was the third-largest, behind tether and USD coin.
FAQs
As of 11 January 2022, there were 10.53 billion UST in circulation
It might be. Keep in mind that, as a stablecoin, it is designed to be more of a store of value than a traditional investment. Nevertheless, you will need to do your own research, remember prices can go both down and up (even with stablecoins!), and that you should never invest more than you can afford to lose.
Hopefully not. As a stablecoin, it is designed to stay at or around the $1 mark. If it does go up, then something has gone badly wrong.
This is a question that only you can answer. It depends on your investment goals.
