What is Terra UST and how does it works?

cryptocurrency

As the world is progressing, so is the way of making payments. The majority of the people still use their national currencies i.e., bank notes and coins to receive and make payments. But, this type of fiat money is controlled by centralised authorities and government systems. Not only this, but due to the emergence of wars in recent times, people are searching for other ways of investment like decentralised cryptocurrencies.

These cryptocurrencies are usually bought and sold at different cryptocurrency exchanges. But, these crypto-assets are often frowned upon due to their volatile and risky nature. Despite this, cryptocurrencies offer a variety of features that can be beneficial in today’s age like making transactions without the interference of an intermediary, secure payments, confidential information, and other incentives.

To delve more deeply into crypto understanding, let’s take a look at one of the promising cryptocurrencies i.e., Terra UST and how it works.

As Terra UST runs on the Terra Network, we first need to understand what is Terra Network.

What is Terra Network?

Built on Cosmos SDK, the Terra Network was developed by Daniel Shin and Do Kwon. The advantage of building the network on this platform is that it allows crypto-asset developers to construct customised blockchains networks. There are several popular applications that run on Terra Network such as Non-Fungible Tokens (NFT), Decentralised Finance (DeFi) and Web3 Applications.

A further advantage of being a Terra UST owner is that since the coin runs on a network that has high interoperability, it gives its developers the chance to build many applications. Furthermore, it gives an assurance to the user that the network is secure and will exist for a longer period of time.

After getting to know the Terra Network, let’s explore what Terra UST is all about.

What is Terra UST?

Launched as a stablecoin crypto-asset against government-issued fiat currencies, the Terra UST uses a smart contract-based algorithm to maintain the price of the UST within the one-dollar range as compared to other stablecoins like USDT. The stablecoins such as USDT tend to peg themselves as a real-world currency by solely depending on maintaining asset reserves. But, due to the unique feature of Terra UST, it remains successful in being a stablecoin.

How does Terra UST work?

On the Terra Network, LUNA and Terra UST are two coins that can be interchanged at a guaranteed price of USD 1 (79.14 INR) regardless of the price change in either of the coins due to the current market conditions. If the demand for UST rises, LUNA coin holders can exchange their coins for UST at USD 1, and gain an arbitrage income by selling their UST coins at an increased price.

When one coin is swapped for another, the coin that is getting exchanged is burned out from the Terra network. Furthermore, the price of the less valued coin increases, when the supply of the exchanged coin decreases. This swapping mechanism of LUNA for UST or vice versa helps investors earn a passive income by keeping the price of the UST at USD 1 (79.14 INR) stable.

Terra UST has surpassed many of the other stablecoins due to its success in maintaining stability in its price without any human intervention and relying completely on its algorithmic-driven smart contracts. Furthermore, Terra UST has provided great help to investors for receiving additional income through staking and interchanging UST for LUNA. If you want to explore more about cryptocurrencies like Terra LUNA, you can check out the website of one of the best cryptocurrency price trackers such as Coingecko, and cryptocurrency exchanges in India such as WazirX.

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