Why Terra Stands Out Among Rival Cryptocurrency Projects
Terra has created two cryptocurrencies. One is UST (CRYPTO: UST), a stablecoin intentionally pegged to the US dollar. There are other stablecoins that intend to do this, but most are dollar-backed. But with UST, its value is backed by Terra’s other cryptocurrency, Moon (CRYPTO: LUNA), which makes things interesting.
If the value of the UST falls against the dollar, investors can sell the UST for dollars and make money. But sell UST burn those tokens, decreasing the supply and increasing the value of the UST in line with the dollar. If the value of UST goes too high, investors can trade Luna tokens for UST (which exist in a one-to-one relationship) and make money that way. But the exchange of Luna tokens for UST creates new UST tokens, increasing the supply of UST and bringing its value back in line with the US dollar.
In this video by Motley Fool Pass behind the scenes, recorded on December 8, Fool analysts Bernd Schmid and Eric Bleeker discuss this unique approach to Terra’s stable coins. More importantly, the guys note that this system works better than other stablecoin projects so far, which means Terra stands out from its rivals.
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Bernd Schmid: That’s what Terra does and it’s really smart, the system they’ve developed. And not just that, it actually works. Other people have developed this before. There have been a lot of competitors, but during the crypto channel’s massive sell-off between May and June, a lot of them actually crashed. What I just explained on the rise, so if the demand for UST increases for stablecoin, then the value of this [inaudible] currency, Luna in this case would increase, the price would increase. In the other direction, it will also happen. So if the demand for stablecoin goes down, the value of collateral – or Luna in this case, non-stablecoin – it will actually go down, the price will go down. This could cause them to call it a death spiral to the point that if demand collapses too quickly everything collapses and then nothing is worth anything. This is actually what is happening, I believe, to almost every stable algorithmic coin over the past couple of months except Terra.
The reason is actually that the other algorithmic stablecoins were created, they used financial incentives similar to what we were talking about before with games to just help people and create demand for these stablecoins, but it wasn’t an official request. Terra is not.
In Terra, the first thing and the biggest thing they did was go to South Korea and they integrated into a payment system. In fact, this payment system works with stablecoin on Terra, and therefore the merchants who use it, they don’t pay credit card fees if the users pay with it. But you pay a minimal fee, which is much lower than the credit card fee, if they use the system. And this is actually how they created the demand for stablecoin, as it is a much cheaper solution than using Visa Where MasterCard, or other credit cards in South Korea. And in fact by now that’s 5% of the Korean population, I believe – 2.5 million people – will have actually used this. This is a natural demand for this stablecoin, and it also drives the demand for this Luna token, which makes it a very interesting proposition.
But now, because they already created this demand, they are now starting to create network effects. This is what this article is about, which I found so fascinating. There is a real ecosystem that is developing on Terra. There are exchanges, where you can exchange other cryptocurrency tokens for UST or between them. Then there is the loan, the loan. I won’t go into that. I think this article goes in that direction, correct me if I’m wrong. You can get a 20% return on your stablecoin. It sounds crazy. It looks like a fake. It sounds like a fraud, in fact, but it isn’t. If you read it, it’s really interesting what they did. It will not stay at 20%, it is not sustainable, in the sense that it obviously depends on the supply and demand of credit. But right now, it is, and has been for some time. It is therefore interesting to use it. The protocol is called Anchor. This essentially lives on the Terra blockchain. Then they also made another one called Mirror, I think that’s the name.
Also this article, if I’m not mistaken, goes into it. This is where we can buy synthetic stocks. I’m not sure but for example you buy synthetic You’re here shares, and this is backed up by Tesla’s shares.
This ecosystem is just exploding because it’s not just Terra Labs. They are the founder of this blockchain and the creator of these first three applications that I have just described. But other third-party developers have jumped on this point and some notable ones also mentioned here, for example Delphi Labs. Delphi is, in my opinion, one of the big digital investors, more institution-oriented. I think they have a hedge fund. They do excellent research, which is also very thorough. They also have a venture capital arm where they provide venture capital, but they also have a technology department, so to speak, where they develop blockchain solutions. They started developing solutions on Terra, and now the ecosystem is exploding. Which means that it could, depending on how well the solutions work and how good they are, also compared to other layers 1, for example Ethereum and Solana, We have already talked about that. I imagine this can create an influx of new users and increase the demand for UST.
What’s this This article is about. It describes it much better than I just did. But also goes into enough detail. I suggest anyone who is interested to read it. It is an exciting project to follow. I believe it looks like a lot of interesting things are coming in the next few months and years, hopefully.
Eric Bleeker: Two quick things about this. No. 1, pushes Fetch.ai See you next week or in the future because I know you have a lot to say on this. I also want to move on to a few questions.
This is the great thing about crypto: just when you think you’ve seen it all you start to see things like synthetic stocks [laughs] that take it to a whole new level. Love this quote from you on using 5% in Korea. Everyone’s looking for comparables of how to compare something to crypto, the emergence of the global web, and you start looking at 5% usage. You certainly go beyond the early adopters. It’s really interesting happening.
Bernd schmid owns Ethereum, Solana and Terra and has the following options: long calls of $ 15,000 in March 2022 on Ethereum and short in March 2022 of $ 2,500 on Ethereum. Eric Bleeker owns Ethereum and Mastercard. Jon quest owns Ethereum and Fetch.ai. The Motley Fool owns and recommends Ethereum, Fetch.ai, Mastercard, Terra, Tesla, and Visa. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.