What is UST and why is it causing crypto chaos?
Crypto coin market prices are anything but stable. The current price of UST is $0.057741. But how does it matter? Many ask this question, given the highly volatile nature of the crypto market. Well, one has to rethink their question because UST is not just a usual crypto coin. Therefore, a drop in its value has more implications than one might imagine.
What Exactly Is UST?
Terra USD, commonly known as UST, is developed by Terraform Labs from Singapore. UST is an algorithm stablecoin designed to function like any other stablecoin.
Stablecoins are specific types of cryptocurrencies designed to match the price of a real-life asset. In the case of UST, the real-life asset is USD. Though it is worth mentioning, UST has no reserve cash help.
UST is created by destroying its sister token Luna. According to experts, it does so with different tactics such as using code lines into the blockchain and smart tokens. Suppose an individual has $405 and they burn one Luna. It will allow them to mint 405 UST. The same mechanism will also work opposite where one can mint one Luna using UST or other similar stablecoins.
How Does The Terra Ecosystem Work?
Both UST and Luna are the components of the Terra ecosystem. UST needs to peg the $1 mark, which is impossible without swapping both the tokens within the Terra ecosystem. Every stablecoin needs a stable physical reserve to maintain its stability, which can be anything from gold to fiat currencies.
For instance, the popular USDT coin maintains its stability by depositing $1 for every Tether coin. In the case of UST, the physical $1 is replaced with an algorithm based on a smart contract. As a result, UST needs Luna to maintain its peg at $1.
So, when UST prices drop below $1, people are more likely to destroy the UST in exchange for Luna. They do so to still receive $1 worth of Luna, which further decreases the supply of UST and stabilizes its worth. This complex working principle requires an adequate understanding of the crypto world paired with effective crypto digital marketing.
Causes Behind The Crash
Many reasons resulted in this notable crash in the crypto market. Some of these reasons or causes include the $200 Million UST dump that de-pegged the UST almost immediately. Besides that, UST losing its use cases is another reason behind this accelerated downfall.
But one cannot forget the current market condition where Luna’s price has fluctuated like never before. Nonetheless, the final nail in the coffin was arbitrage backfire. Nobody imagined the method leveraged to stabilize this coin would contribute to its downfall. Many people saw this as an opportunity to make profits, which only worsened the situation.
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