TerraUSD, or UST, is the stablecoin of the crypto company Terra. The stablecoin was initially backed by LUNA, the coin that also belongs to the Terra company. The founder of Terra, Do Kwon, announced that Bitcoin would be added to this backing. Since then, Terra has been buying Bitcoin heavily.
Now, another new crypto currency is being added to UST’s backing. In fact, after entering into a partnership, Terra announces that it will be buying $200 million of AVAX, which will go into the backing for UST.
What does this mean for UST?
UST is a stablecoin, which means that the value of this coin, in theory, always remains equal to $1. In most cases, this means that for every 1 stablecoin out there, there is $1 “in a vault” somewhere.
In this way, the stablecoin has a real value, which does not deviate from $1, because it actually guarantees $1. Like it’s the case with other stablecoins like Tether / USDT, for example, although people have their questions about the backing of this stablecoin.
With UST, this works a little differently. This stablecoin is backed by Luna, Bitcoin and now Avalanche. In the past, Luna was always burned $1 when 1 UST was minted, so the value of 1 UST could always remain equal to $1. Now this is no longer possible, Terra will not burn Bitcoin or Avalanche.
So now for every UST that is minted, Bitcoin and Avalanche are purchased and put in a vault. So that there is actual value that the UST represents. There can be risks involved here, such as highly volatile periods, where prices drop and the vault can suddenly be worth 90% less.