By market capitalization, among the stablecoins, the top three include centralized coins: Tether, USDC and Binance USD. “Centralized” means the fact that a single company is responsible for issuing tokens.
This imposes certain risks both on investors and on the entire industry as a whole.
For example, when issuing USDT, Tether promised to keep a similar amount of US dollars in its accounts to maintain liquidity. However, due to an investigation conducted by the New York State Attorney General’s Office, the “provision of dollar reserves” was supplemented with “crypto assets and income from lending.” And after a forced audit in March, it turned out that about half of all collateral is publicly undisclosed debt obligations. In other words, by issuing tokens, the company credits other crypto companies. And if most users want to exchange their tether for USD overnight, there will not be enough liquidity in the market, and there will be a risk of a 1:1 collapse of the exchange rate with all the ensuing consequences.
To avoid the risk of abuse of trust, you can switch to decentralized stablecoins, whose issue is registered in the algorithm and does not depend on the will of the publisher. This month, UST of the Terra project took the first place in capitalization among such coins, overtaking DAI from Maker.
The algorithm for creating the money supply supports the UST rate to the US dollar in a ratio of 1:1 due to the floating rate of its own LUNA coin. Speaking generally, when there is an excess of money supply, part of the LUNA is burned, and when there is a shortage, the remuneration of validators increases. Due to the high potential of the project, the coin has grown 1,500 times this year, and in the Defi sector it has overtaken Binance and is second only to Ethereum.
The Terra project has ambitious goals and plans to become the leading connecting blockchain between traditional finance and cryptocurrencies. The spread of decentralized applications and the expected boom of metaverses will give LUNA an impetus to continue growing in 2022, and UST can enter the TOP 3 stablecoins by capitalization.