Terra’s Algorithmic Stablecoin, $UST, Now the 3rd Most Valuable Stablecoin

An algorithmic stablecoin relies on an algorithm, which can issue more coins when its price increases and buy them off the market when the price falls. In $UST's case, its algorithmic mechanism is linked to Terra’s native cryptocurrency, $LUNA, which regulates the stablecoin’s peg.

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The TerraUSD ($UST) stablecoin recently overtook Binance USD ($BUSD) in market capitalization becoming the third-largest stablecoin.

Following UST’s rally, here is the new ranking among stablecoins:

  • Tether ($USDT)
  • USDC ($USDC)
  • UST ($UST)
  • BUSD ($BUSD)
  • DAI ($DAI)

In the latest data from analytics platform, CoinGecko, TerraUSD’s market capitalization at $17.6 billion is just above Binance USD’s $17.3 billion boosted by constant growth in the last 30 days.

Take note that Terra USD is an algorithmic stablecoin while Tether, USDC, and Binance USD are asset-backed stablecoins, the latter being founded by Paxos and Binance.

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SEE ALSO: EXPLAINER GUIDE: How to Stake $LUNA and Earn Rewards on the Terra Ecosystem in 5 Easy Steps

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What is An Algorithmic Stablecoin

Ever since it was introduced, Terra has continued to validate the concept of an algorithmic stablecoin, with its new position further evidence of market acceptance.

An algorithmic stablecoin relies on an algorithm, which can issue more coins when its price increases and buy them off the market when the price falls.

In $UST’s case, its algorithmic mechanism is linked to Terra’s native cryptocurrency, $LUNA, which regulates the stablecoin’s peg.

$UST maintains stability through a simple swap mechanism – 1 $UST can be exchanged for 1 dollar’s worth of $LUNA at any time.

If $UST becomes less valuable than $1.00, buyers can scoop it up and use the swap mechanism to sell it for $1.00, enabling them to make a profit. As buyers do this, demand for $UST causes the price to go up again until it reaches $1 USD. These economic incentives act rapidly to maintain $UST’s stability.

Following the move, Do Kwon, the founder of Terraform Labs (organization behind Terra), put out a tweet, reminding people that the stablecoin needs just to 5x to go above Tether and USDC.

$UST’s performance also helped $LUNA gain 17$ in the past 24 hours, crossing past $90.

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RECOMMENDED READING: Terra UST Stablecoin Hits $10 Billion Market Cap – Gains Over 12,000% in 2021 Alone

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