TerraUSD was created in 2018 by the Korean company Terraform Labs. However, it failed in May 2022. Curious TerraUSD details…
What is Terra USD?
TerraUSD (UST), the decentralized stablecoin of the Terra blockchain, is a cryptocurrency pegged to the US dollar. It was created in 2018 by Daniel Shin and Kwon, CEO of the Korean company Terraform Labs. UST is a blockchain project that supports crypto and financial applications. TerraUSD is a decentralized algorithmic stablecoin that aims to maintain its value through a burn mechanism.
Stablecoin (Stable Coin) is defined as a type of crypto money that aims to provide price stability in crypto money markets. It is expected to be resistant to sudden price movements, so the value of cryptocurrencies is often indexed to the price of a physical asset. TerraUSD is also a cryptocurrency indexed 1:1 to the US dollar.
It is aimed to maintain the stability pegged to the dollar and to regulate the supply and demand of the coin algorithmically. When demand exceeds supply, the price rises. When the opposite happens, the price goes down. For this reason, the stablecoin’s price is intended to remain at $1, as the supply needs to be regulated. With the Terra stable coin, unlike Bitcoin, it aimed to reduce the price volatility inherent in cryptocurrencies.
How Does TerraUSD Work? UST And Luna
Terra’s native cryptocurrency is Luna. Luna supports UST. For a new UST to be produced, a percentage of Luna must be burned. The same is true vice versa. As the demand for UST increases with the number of people using the currency, more Lunas will be automatically burned. It will also be forwarded to a community group. This balancing act was thought to help stabilize prices to some extent. With the volatility of the market and an overall decline, the stabilizing move for the TerraUSD stablecoin has failed. The reflective nature of the system has increased selling pressure on Luna as demand for UST has dropped. An unsuccessful result was encountered, with the prices of UST and Luna approaching almost zero.
Why Did UST And LUNA Fail?
UST, a dollar-indexed stablecoin, has led to losses in the cryptocurrency market by showing high volatility in contrast to low volatility. This situation, which has caused tensions in the ecosystem, has also caused the views on stablecoins to worry. According to experts, UST and Luna failed due to Terra’s wrong financial policy.
It was stated that the Terra Foundation took risks by ignoring the volatile nature of Bitcoin in order to gain more profit. In addition, it is thought that the risk taken is not managed properly. It is stated that Terra does not behave economically realistically and has led IHR to failure by offering interest yields far above the market. As a result of these situations, it was stated that a decrease in Bitcoin caused the UST reserves to melt and the crisis began at that very moment.
When UST could not find the equivalent of 1 dollar, an atmosphere of panic arose and as sales increased, Luna was sold for the necessary reserve. According to experts, the Terra Foundation’s sale of Luna in a panic environment caused the second mistake. Luna has had a huge fall. UST and Luna failed as a result of the decisions taken by the Terra Foundation for a quick solution in a panic environment.
