Terra’s stablecoin UST could soon outperform DAI

According to data from CoinGecko, the Terra ecosystem’s stablecoin, TerraUSD (UST), is about to outperform Maker’s DAI with a smaller market cap gap. If successful, UST becomes the fourth largest stablecoin by market capitalization.

In the past thirty days, the market cap of UST ($ 8.79 billion) has grown more than 90%, far outpacing DAI’s 3% ($ 9.11 billion) growth, and it will not . It is wrong to say that UST is likely to hit DAI in the near future.

Market capitalization for DAI vs. UST | Source: CoinGecko

What is Terra and UST?

Terra is a project that creates stablecoins, which means that you can use the platform to mint all stablecoins linked to Fiat, including TerraGBP and TerraEUR.

Terra is created using a software development kit from Cosmos, another interactive blockchain. It is currently the fifth largest Layer 1 smart contract support network after Polkadot, Cardano, Solana, and Ethereum.

Terra Stablecoins are not supported by conventional methods. In contrast to the two best stablecoins, Tether (USDT) and USDC, which are covered by reserve cash, all of Terra’s stablecoins are linked to LUNA.

Whenever a user wants to mint UST, he has to burn the equivalent of one dollar in LUNA. The same mechanism is always implemented when the user wants to coin LUNA, he must first burn the UST.

Maker DAI, on the other hand, is covered by over-insurance. In order to generate DAI, users need to lock more than 100% of the value of the Stbalecoins that they want to generate with other cryptocurrencies such as Ethereum or USDC.

Terra’s incredible market performance is not just the result of UST’s success as a trusted stablecoin. The stablecoin issuer’s native token LUNA also recently exploded.

At the beginning of the month, LUNA broke into the top 10 cryptocurrencies by capitalization after a whopping 58% growth.

LUNA / USDT. Source: TradingView

One of the main reasons for the respective price increases for both tokens is the doubling of the network’s burning mechanism.

The first initiative is a protocol upgrade called Columbus-5, which aims to permanently destroy the LUNA burned when the UST was minted. Previously, this LUNA was transferred to a pool to finance various Terra developments. Second, project founder Do Kwon made a proposal to destroy the remaining LUNA (in exchange for UST) with funds raised prior to Columbus-5.

Along with this mass burning of LUNA, DeFi logs on Terra also shot up like mushrooms. And like Ethereum, stablecoins are DeFi’s lifeblood, which is driving even more demand for USTs. Around $ 12.3 billion in Terra has been trapped in just ten DeFi logs.

DeFi growth on Terra | Source: DeFi Lama

Combine that with the rate at which USTs are minted and, to be fair, Terra’s stablecoin is becoming a solid foothold in DeFi and the broader crypto market.

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