What is UST coin?

UST, or TerraUSD, is a decentralized, scalable, cross-chain, and yield-bearing algorithmic stablecoin issued by Terraform Labs. It is designed to provide a stable digital currency pegged to the U.S. dollar. Unlike traditional centralized stablecoins such as USDT and USDC, UST does not rely on dollar reserves to support its value. Instead, it maintains price stability through an algorithm that adjusts supply and demand.

The stability mechanism of UST relies on Terra’s dual-token system, with its value stability maintained through market arbitrage and support from the Luna token. As the native proof-of-stake token of the Terra blockchain, Luna plays a crucial role in this process. For every 1 UST minted, an equivalent of $1 worth of Luna must be burned. Conversely, when the price of UST falls below $1, users can burn UST to exchange for Luna, incentivizing market participants to restore UST’s peg to the dollar.

Overall, Terra’s business model was built around UST, aiming to challenge traditional centralized stablecoins like USDT and USDC while establishing a decentralized payment system. However, the stability of this mechanism was highly dependent on the market value of Luna. When Luna’s market capitalization became insufficient to support UST’s circulating supply, UST became vulnerable to depegging and could spiral into a “death spiral,” ultimately leading to the collapse of the entire Terra ecosystem. The UST crash in May 2022 was a prime example of this risk, serving as a critical lesson for the future design of algorithmic stablecoins.

UST coin, namely TerraUSD coin (Image source:https://www.jb51.net/blockchain/865645.html）

Related links:

X (Twitter):https://x.com/terra_money

Discord:https://discord.com/invite/terra-983359798059892766

Forum:https://common.xyz/terra/discussions?tab=all

Telegram:https://t.me/terranetworklobby

Medium:https://medium.com/terra-money

Github:https://github.com/terra-money

Trade Now:https://www.gate.io/en/trade/USTC_USDT

UST coin practical application

1. Digital Asset Trading

   The price stability of UST coin makes it an important stablecoin in the cryptocurrency trading market. Investors can buy and sell through Terra Station or centralized exchanges (CEX) and decentralized exchanges (DEX) that support UST trading, participating in the digital asset market.

2. Cross-border payment and settlement

   UST, as a decentralized stablecoin, can be used for global payments without relying on traditional banking systems, making it a tool for cross-border payments and international settlements, reducing foreign exchange volatility risks, and thus reducing the high fees and settlement times of traditional cross-border payments. In addition, within the Terra ecosystem, multiple payment platforms have integrated UST as a payment method, such as MoonPay, making it easier for merchants and users to conduct borderless transactions using UST.

3. Store of Value Tool

   UST, due to its price stability, has been seen as a low-volatility cryptographic asset storage tool. Some investors use UST as a safe-haven asset, converting to UST during market turmoil to avoid the risk of high-volatility assets, making it an important financial tool in the Web3 economic system.

4. DeFi derivative applications

   UST plays an important role in the DeFi ecosystem, and is widely used in scenarios such as lending, liquidity mining, yield aggregation, and derivatives trading. For example, using DeFi protocols to deposit UST for stable yield, or using UST for decentralized lending to provide liquidity support.

Example of UST coin (TerraClassicUSD, USTC) futures trading (Image source:https://www.kraken.com/features/futures/terraclassicusd)

UST coin unpegging incident

In early May 2022, the Terra ecosystem experienced a systemic collapse due to the UST stablecoin’s unpegging, causing a sharp drop in the price of its native token LUNA and a significant shrinkage of on-chain assets, resulting in a heavy blow to the entire ecosystem. In order to rescue the Terra ecosystem, the project team implemented a chain fork on May 28, 2022, attempting to address the issues exposed by the old version of the LUNA token and the UST stablecoin, and launched the new LUNA 2.0 public chain network.

After this fork, the original Terra chain was renamed Terra Classic, and its native token LUNA was also renamed LUNC (LUNA Classic), while the original stablecoin UST was renamed Terra Classic USD (USTC). It is worth noting that this hard fork and subsequent rebranding have caused widespread confusion in the crypto market. It is recommended that investors pay attention to distinguishing between assets, old and new, when trading to avoid confusion.

In May 2022, UST coin experienced an anchor detachment event (Image source: https://www.bitpush.news/articles/2527350)

$USTC market performance

TerraClassicUSD (USTC) has shown a trend of oscillating downward after stabilizing and consolidating in the past two months, accompanied by periodic rebounds and fluctuations in market trading volume. Since mid-January, the USTC price has undergone a more noticeable downward trend, reaching a low near 0.012 USDT; in early February, the USTC price rebounded above 0.015 USDT, but then fell again, indicating that the market still lacks sufficient buying support.

As of March 6th (UTC+0) when this article was written, the latest price of $USTC is 0.012493 US dollars, with a total circulation market value of 1.1111 million US dollars. The current key support level is at 0.012 USDT. Without additional catalytic factors, the price may continue to consolidate at a low level.

(Trade Now: https://www.gate.io/en/trade/USTC_USDT）

02/19 - 03/05 period $XRP trend (Source: https://coinmarketcap.com/dexscan/bsc）

$USTC Risk Warning

The global adoption of USTC contributes to the wider use of the U.S. dollar, offering a convenient stablecoin solution for cross-border payments, digital asset trading, and other applications. However, USTC has experienced extreme market events, including “stablecoin depegging,” which exposed its high-risk nature. Investors should remain cautious of potential losses caused by market volatility. Furthermore, the regulatory landscape for stablecoins remains highly uncertain, and future policy changes could significantly impact USTC’s liquidity and compliance status. Therefore, investors are advised to carefully assess potential risks and exercise caution before engaging in USTC transactions.

Conclusion

The rise and fall of UST is a representative case in the development history of the cryptocurrency market. As an innovative algorithmic stablecoin, UST attempts to break through the traditional centralized stablecoin model. However, due to its high dependence on Luna as a value support, it lost its anchoring in the face of extreme market fluctuations, leading to a “death spiral” and ultimately triggering a systemic collapse of the Terra ecosystem. Although UST continues in the form of USTC after the chain fork and still has some application value in the DeFi field, its long-term stability and market prospects are still full of uncertainties, and investors need to carefully assess the related risks. With the continuous evolution of the stablecoin market, the future development path and feasibility of algorithmic stablecoins are still worth paying close attention to.