The success of UST comes from the booming ecological coupling protocol, and the challenge of UST comes from the market’s wavering confidence in LUNA. It is now urgent to develop a synthetic asset mirror protocol to meet the market’s pain point of hedging crypto asset exposure, increase the ecological demand for upstream UST currency, and maintain system stability.
In this paper, we briefly review the mechanism design of LUNA and UST, analyze the recent challenges faced by UST, and answer the following questions.
What are the advantages of the UST stablecoin design?
What are the advantages of the UST stablecoin design? There are currently some signs of UST going off-anchor and the price is about 5% below USDC, why is this happening?
What does the future hold for the Terra ecosystem?
For some time now, the market has generally considered UST to be one of the few stable algorithmic stable coins. At the peak of the bull market time period, with DAI 4 billion, UST 2.5 billion, and LUSD 1.5 billion, UST was probably the only algorithmic stablecoin that could be in the same order of magnitude as pledged stablecoins. However, how did this happen when UST recently went off-anchor by about 5% amidst huge market volatility?
Pros: Mutual Coupling of Mechanisms
Terra is similar to an automated traditional bank that facilitates payments, transfers, investments, loans and savings. It is implemented as a public chain, owned and managed by the community and accessible to anyone in the world with an internet connection. Users access the ecosystem through the Terra stablecoin and access the above banking features through a set of applications and protocols. terra improves the existing banking model by being globally accessible and non-rent-seeking.
One of the most interesting aspects of the Terra ecosystem is its protocol-to-protocol coupling nature, specifically looking at.
Mirror is a protocol built on Terra that allows users to trade synthetic stocks (mAssets). mAssets are created through the minting process and can be minted by any user by depositing collateral with a minimum ratio of 150%. Trading minted assets on Mirror is done through a liquidity pool of AMMs or minted assets paired with USTs. mAssets prices are softly pegged to their real-world counterparts through arbitrageurs and clearing rewards. Traders who are long certain stocks will buy and hold mAssets, while minting mAssets is effectively shorting mAssets.
Anchor is the second major protocol launched on Terra, and perhaps the most disruptive, Anchor pledges the borrower’s collateral to provide lenders with a fixed 20% annualized return on UST deposits. By pledging to a major PoS network, Anchor is able to maintain a steady, cash-flow generating income for depositors.
Terra has many plans for the future, such as releasing an ETF protocol (Nebula) to further aggregate the returns of various composites and assets, build a more robust UI experience for users (Kash), and integrate with large companies and fiat-to-cryptocurrency onramps (Local Terra). ETFs will increase the demand for synthetic assets, making them more stable, while Kash will guide more users into the Crypto world on the front end, and as the overall ecosystem grows, it will be possible to work with institutional clients in Onramp to further expand the ecosystem’s frontiers.
The combination of these financial services lowers the barrier to access for the average user, and in addition, for within the protocol, increases the monetary demand for USTs and improves LUNA’s ability to capture value. All of these diverse users and participants have led to deeper market depth and a more stable overall system.
Cons: LUNA’s Deflationary Spiral
As of 2021-5-24, the UST-USDC rate is at about 0.94 and the LUNA price is at about 4.74, a two-day drop of nearly 70%.
The core of the UST algorithm stabilization mechanism is to smooth out short-term fluctuations through the medium and long-term benefits of the system. UST is a dual token design, LUNA is the system Token, which can capture network-wide fees after staking, while UST is a USD stable coin. This dual Token design provides a negative feedback force to the system in normal times, keeping the stable coin UST stable.
For example, when USTUSD is in play, it is possible to mint UST with LUNA.
The above mechanism is based on the premise that the market has an expectation of uniform growth for LUNA. If this expectation is stable, then when UST is unanchored, the LUNA second pool depth will be deeper and arbitrageurs will be more willing to stake to capture gains in the system rather than sell LUNA directly; while if the expectation disappears, there will be fewer buyers of LUNA in the market and the overall liquidity pool will be shallow, then when arbitrageurs sell LUNA, their slippage will be very This will greatly limit the arbitrageurs’ incentive and thus affect the system stability.
As we have just shown, the Terra ecosystem has demonstrated a huge coupling capability that allows the development of the upper layer protocols to drive the demand for the underlying protocols, and the larger the upper and middle layers of DeFi Lego, the stronger the demand for LUNA and UST, and the better the stability. But at the same time, the problem exposed is the positive feedback spiral, the underlying protocol accelerates the expansion, the system accelerates the stability; the underlying protocol accelerates the contraction, the system accelerates the fluctuation. This overall strong consistency also causes the phenomenon of LUNA’s ultra-high volatility and UST’s unanchoring.
So what can be done about LUNA? An aggressive push for mirror is imminent, and there is a huge need to help users switch exposure on the chain when market sentiment for crypto assets is low. If I can buy synthetic U.S. Treasuries, then I’m less vulnerable to shocks from the mainstream Crypto market. And, as mirror grows, minting synthetic assets will drive demand for more USTs, maintaining the stability of UST values.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/terra-eco-stable-ust-shows-signs-of-de-anchoring-whats-going-on/
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