Key takeaways:
- TerraUSD (UST) has overtaken Binance USD to become the third-largest stablecoin in terms of market capitalization
- The growing popularity of Terra (LUNA) and Anchor Protocol have been the main reasons behind UST’s surge in recent months
- UST’s circulating supply has grown more than 900% YoY
Terra’s UST has grown by over 900% year over year
TerraUSD, an algorithmic stablecoin issued on the Terra blockchain, has surpassed Binance USD to become the third-largest stable digital currency in the market. At press time, UST has a market capitalization of $17.8 billion compared to BUSD’s $17.4 billion.
UST has been on a tear in the last 12 months. The stablecoin’s circulating supply has increased by roughly 900% from $1.8 billion in April 2021. Much of its success can be attributed to the overall growth of the Terra ecosystem, with its primary token LUNA leading the charge. LUNA entered the cryptocurrency top 10 earlier this year on the tailwind of close to 600% gains in the last 12 months.
LUNA and UST are directly dependent on each other’s market success due to their inherent blockchain design. Case in point, users are able to mint UST stable digital currency by burning LUNA tokens and create new LUNA by burning UST, meaning that the supply and price of both assets are entirely intertwined.
Earlier this year, Luna Foundation Guard (LFG), a non-profit organization aiming to grow the Terra ecosystem, launched a BTC-denominated UST Forex Reserve. The goal of the reserve fund is to prevent a so-called “bank run” scenario, which can cause the stablecoin’s algorithmically-controlled dollar price peg to run amok if demand outstrips supply, and vice-versa. In addition, the inclusion of Bitcoin in the reserve fund lends a further layer of stability to UST and the broader Terra ecosystem.
A major reason for UST’s growth can be attributed to the growing popularity of Anchor Protocol, which allows users to earn up to 20% yearly yields on their stablecoin deposits. According to data from DeFi Llama, the savings protocol accounts for over half of the total value locked (TVL) on the Terra blockchain.
The stablecoin sector as a whole has experienced massive growth in recent months. For context, the largest stablecoin, Tether, currently has a circulating supply of $82 billion and regularly sits atop the largest daily trading volume list.
