Can Terra Classic's USTC Stablecoin ever get back $1?

Can Terra Classic’s USTC Stablecoin ever get back $1?

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  • Terra developer Tobias Andersen made an offer yesterday to the Terra Classic community to work on reclassifying the USTC to $1.
  • Andersen claims that reconnection can be accomplished by attracting new business to the Terra Classic blockchain.
  • There are several reasons to doubt the feasibility of the plan, not the least of which is its lack of an actual price-fixing mechanism.

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USTC surged 57% shortly after developer Terra published a proposal calling on the community to work towards bringing the former stablecoin back to its $1 peg – and keep it there.

Back from the dead?

The Terra Classic community is hoping for the return of its failed stablecoin.

Terra Developer Tobias Andersen published A Medium post yesterday stating that the Terra Classic community (or “Lunatics” as they call themselves) should aim to push the ecosystem’s original stablecoin, TerraClassicUSD (USTC), to a $1 peg.

This post caused the USTC to throat Just over 57% on Binance (the exchange with the most token liquidity), from $0.029 to $0.045. Then the coin has continued to drop by 12% and is trading at $0.039 at the time of writing. Per CoinGecko data, USTC is above 592% since it reached $0.006 on June 18.

The algorithmic stablecoin, formerly known as UST, was Terra’s flagship product. An algorithm allowed users to mint 1 floor tanks by burning 1 dollar of LUNA (the UST Terra Token and Balancing Mechanism of UST) and vice versa. The mechanism helped turn LUNA and UST into two of the largest crypto tokens by market cap during the 2021 rally. However, it also created a negative feedback loop when the stablecoin broke its peg in early May, and investors lost confidence. with it. UST, LUNA and the rest of the Terra . ecosystem collapsedwhich directly wiped out more than $40 billion from the value of the crypto market in a matter of days.

practical concerns

While Andersen’s goal is ambitious, the content of his proposal is loath.

Andersen claims that USTC reconnection can be achieved by incentivizing new companies to use the existing Terra Classic blockchain infrastructure. To this end, Andersen suggests implementing a burn-in mechanism for USTC, lock-in periods for LUNC, and creating partial exchange and split-complex mechanisms (which can then be taxed). But Terra’s developer failed to explain exactly how successful implementation of these features would be in any way beneficial for USTC to regain its binding.

Currently there Three main types of stablecoins. Some, such as USDT and USDC, are backed by reserves made up of government currencies, such as the US dollar or the euro. Others, such as MakerDAO’s DAI, use an additional synergy process: users can deposit ETH or other cryptocurrencies and a DAI instrument against their assets. Finally, algorithmic stablecoins, such as ancient earth treasuries, are usually powered by algorithmic mechanisms that attempt to direct market forces toward coin price stability.

But it is also possible that this one dollar target will be out of reach. The proposal appears to combine the idea of ​​network activity on the Terra Classic blockchain with the price of USTC rising. Unfortunately, this will not be enough. At most, network activity could drive the price of the ecosystem’s original token, LUNC, but unless a mechanism is put in place for USTC to capture some of the value fetched into the Terra blockchain, there are no fundamental reasons for the previous stablecoin’s price to change.

Nor does it address how USTC consistently maintains a peg of its currency without becoming a purely speculative asset.

This isn’t the first time the Lunatics have pinned their hopes on questionable plans. society recently rallied About the idea that the LUNC token, which is trading at $0.00029 today, could also reach $1. The token must exceed the market value of Bitcoin several times for this to happen.

Disclaimer: At the time of writing, the author of this article owns BTC, ETH, and many other cryptocurrencies.

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#Terra #Classics #USTC #Stablecoin

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