The majority of the world still runs on fiat money such as dollars, pounds, etc. Most of these currencies are managed by centralised government systems. However, with the emergence of the Russia-Ukraine war in recent times, people are looking for alternate sources of investments, such as decentralised cryptocurrencies.
However, crypto assets are traditionally looked upon as financial instruments that are inherently volatile and risky, but what if you were told that you could invest in the world of crypto without being privy to any of the price volatility that a crypto investor usually faces. Sounds like a dream, right?
Then let’s get started with understanding a crypto asset – Terra UST, a decentralised and free of price volatility in this article. In this article we will also learn about the network that supports Terra UST and talk about the coin’s unique features, such as pegging the Terra UST coin to a real-world currency. We will also explore questions such as how can one earn passive income by buying Terra UST? Further, how can one earn arbitrage income by trading between LUNA and UST? And lastly, we will also talk about the points that an investor needs to consider before buying a Terra UST coin. So, let us understand what Terra network is.
What Is Terra Network?
Terra UST coin runs on the Terra network that Do Kwon and Daniel Shin founded. The Terra network is built on Cosmos SDK, allowing other crypto asset developers to build their customised blockchain networks. Some famous applications that run on the Terra network are Decentralised Finance (DeFi), Web3 Applications, and Non-Fungible Tokens (NFT). This indicates that Terra’s network allows interoperability and gives developers a use case to develop several other applications. As an investor in Terra UST coin, such features provide a vote of confidence that the network on which the coin is developed is strong and is here to stay for a long period. The market capitalization of Terra UST has grown from a modest USD 130 million to a staggering USD 15 billion in one year.
Now that we have understood the network on which the Terra UST coin works let us learn more about how the Terra UST coin functions and its various applications:
What Is Terra UST?
The Terra UST is a stablecoin crypto-asset pegged against government-issued fiat such as the US dollar currency. Unlike other stablecoins such as USDT, which rely on maintaining reserves of assets before pegging itself to a real-world currency, the Terra UST runs on a smart contract-based algorithm that keeps the price of the UST in the one-dollar radar range. This unique feature of the coin to maintain a stable price makes it a stablecoin. Let us understand how Terra UST maintains a stable price for its coin and how an investor can generate a passive source of income from this.
LUNA and Terra UST are two coins that run on the Terra network, and one can interchangeably swap the two coins at a guaranteed price of USD 1 no matter the current market price of either of the coins. Therefore, when the demand for UST increases, investors holding LUNA coins can exchange LUNA for UST at USD 1 and gain an arbitrage income by selling UST for a higher price.
In exchanging coins, when one coin is swapped for the other, the coin being exchanged gets burned out from the Terra ecosystem. Also, the supply of that coin reduces, consequently increasing the price of the less valued coin. Similarly, the coin that is swapped for, the supply of that coin increases, and the price of that coin in the long term reduces. This mechanism of swapping LUNA for UST or vice-versa helps investors earn a passive income and maintain the price of the UST at the USD 1 range simultaneously, making it a stablecoin.
In the real world, the governments appoint officials and economists to maintain stability in that country’s currency. However, Terra UST’s success in maintaining stability in its price without any human intervention simply by relying on its algorithmic-driven smart contracts has gained popularity amongst the DeFi community. Buying Terra UST is helping investors generate additional income via staking and swapping UST for LUNA.
Despite all the advantages laid out in front of us, as investors, before buying Terra UST, we need to be aware that stablecoins such as Terra UST challenge the relevance of an age-old system of fiat currency that was put in place by the government institutions. Therefore, even though Terra UST is stable and has its benefits, one needs to be careful in studying the government policies framed in context to stablecoins of the particular economy. In addition to that, an investor needs to select the right crypto exchange that follows all the required government protocols for running a crypto exchange. One such exchange in India is Zebpay – India’s leading cryptocurrency exchange that provides best-in-class services and complies with all the regulations put in place by the government. Start trading on Zebpay!