Terra (LUNA): How UST Works?

Hello,

You probably already heard about Terra (LUNA) and its ecosystem. One of the most popular features of this blockchain is UST, a stablecoin that pays high APY and it's in high demand right now.

UST doesn't work like a normal stablecoin, like USDT where every USDT has to be backed by 1 dollar.

So how does UST maintain its peg to 1 USD?

This is basic supply and demand, if there's a high demand for UST this would make the price of UST go up, to maintain its price, more UST is minted, this new minted UST comes from burning LUNA and mint UST. If the demand for UST is low the value of UST would go down, for this to not happen UST is burned and LUNA is minted.

If the demand of UST is high it would cause the price of LUNA to go up since more LUNA would be burned to mint new UST.

This type of stablecoin is called an algorithmic stablecoin and it has many advantages over a normal stablecoin. It's transparent since it has a mechanism in which users are the ones that guarantee the peg, this makes it a DeFi stablecoin. Not having a central authority running it makes it safer for users, because nobody can simply run with the UST. Of course the chance of being hacked is there but this is true for every system.

Terra (LUNA) really has hit success with its stablecoins and the way they do it is really impressive. LUNA is a Top 10 coin right now and UST Top 20, the project has come a long way and it seems that it's here to stay. Take advantage of this DeFi project and start earning high returns on your UST.

Best Regards,

Cryptopeach