Binance USD has been overtaken by the dollar-pegged UST to become the third-largest stablecoin in crypto market market capitalization.
First DAI now BUSD. Terra’s UST is on a tear.
Today marks another milestone for the rapidly-growing TerraUSD (UST stablecoin, which is part of the Terra eco-system. It has become crypto’s third largest stablecoin, with more than $17billion in market capitalization.
Terra’s stablecoin surpassed Binance USD (BUSD), to take third place. However, the gap is small: approximately $68 million.
Tether, which has a market cap of $82 billion, is the leading stablecoin at this time. USD Coin ( USDC ) is second with $49 billion.
There is a fundamental difference between the market caps and how these stablecoins were designed.
BUSD is a fiat-backed stabilitycoin. This means that the stablecoin’s custodian (in this case Paxos), has the equivalent amount BUSD circulating as cash, cash equivalents or other traditional assets.
USDC and USDT can be built in the same way, with attestations claiming each company has a dollar-equivalent asset to every stablecoin currently in circulation.
Terra’s stablecoin, however, is built differently. This stablecoin, instead of being a central entity that holds traditional assets such as cash or bonds is designed to keep it pegged to the greenback through a mint-and burn mechanism and smart market arbitragers.
Here’s how it works. To create one UST users must first purchase and then destroy $1 LUNA (Terra’s governance token and staking token). You can also do the opposite: Every time you exchange $1 of LUNA with UST, one UST is destroyed.
One UST equals one LUNA. This means that there are many ways to profit from any deviation in the stablecoin’s peg. Arbitragers have the option to swap UST for $1 of LUNA, if the UST drops below $0.99, and make a small profit. They also reduce the supply of UST, making it scarcer.
Although it is a unique system, crypto has taken to it.
UST’s market capital has risen from $2.8 billion to $5.8 billion in just five months. LUNA’s all time high has been achieved after all time high.
