TerraUSD is now the third-biggest stablecoin on the market, but the bigger the rewards, the bigger the risks. Its greatest strength is its algorithmic anchor to its $1 value, but that may be its greatest weakness as well.
UST keeps its $1 dollar value by using a smart contract-based algorithm to keep the price of UST anchored to $1 by permanently destroying LUNA tokens in order to mint create UST tokens.
As Ardoino sees it, “If you have a liquidation [with an algorithmic stablecoin of UST's size] with this market, you can still handle that. But imagine if you have a $80 [billion] or $100 billion market cap stablecoin like tether that’s [primarily] backed by digital assets. It’s really hard to predict what will happen and [know] if there will be enough liquidity to backstop that immense cascade.
Why is he even noticing UST considering USDT and USDC are so much bigger, at a market cap of $82 billion and $49 billion, respectively? Maybe because UST has been quickly gaining on the stablecoin leaders, growing 138-fold in 2021.
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