There’s no lack of blockchain-based projects attempting to create or develop a digital version of the US dollar these days. This includes tether (USDT, +0.01%), USD coin (USDC, +0.01%), diem, dai (DAI, +0.01%). The Federal Reserve’s study into whether to issue a central bank digital currency. However, based on the issuer’s governance token price thus far in 2021, one project, Terra, appears to be outperforming the rest.
Terra is a three-year-old project from Terraform Labs in South Korea, designed to enable a variety of decentralized stablecoins. Terra’s LUNA token is part of an autonomous balancing system that helps keep stablecoin values stable. It has seen a jump in demand on cryptocurrency exchanges.
The price of LUNA has increased by a staggering 25-fold this year. It exceeds the already spectacular seven-fold rise in MakerDAO’s maker tokens. LUNA’s market value has risen from $300 million to almost $6 billion in less than five months, surpassing maker (MKR, -1.71 percent) at $4.7 billion.
Mirror Protocol and Anchor Protocol
Mirror protocol, which allows users to create tokens that reflect the price of real-world assets like equities, and Anchor protocol, a loan and saving platform, are both viewed as valuable by cryptocurrency analysts. TerraUSD (UST), which is pegged to US dollars. TerraKRW (KRT), which is pegged to the Korean won, are used in both protocols.
The LUNA token is a governance token. It is part of an algorithmic balancing method that helps the stablecoins keep their pegs. When the price of TerraUSD rises above $1, for example, users can transfer $1 worth of LUNA to the system and receive 1 UST in exchange, bringing the stablecoin’s price back into line.
According to Messari analyst Phang Jun Yu in a May 6 study, the combination of Anchor and Mirror generates a flywheel that successfully keeps and grows monetary inputs.
Users will turn to stocks and start utilizing Mirror when the market is optimistic, according to Messari. Consumers convert their assets back into cash and deposit them into Anchor when the market is adverse. Also, individuals are afraid of investing.
Stablecoins, whether centralized versions like tether and USD coin or decentralized versions like dai that blockchain-based protocols manage proved popular assets in digital asset markets as alternatives to volatile cryptocurrencies like bitcoin (BTC, +0.51%) and ethereum (ETH, -1.05%).
Algorithmic stablecoins, such as Fei Protocol (FEI), are a new subcategory. It uses software-coded methods contained in the protocol to keep the currency peg. While some of these projects have had mixed results in keeping the peg at a 1-to-1 reading. Proponents claim they offer advantages.
In an interview with CoinDesk, Terraform CEO Do Kwon said that the advantage of algorithmic stablecoins is that nobody can take it away. It preserves all the censorship-resistant qualities of bitcoin.
Of course, pricing for younger cryptocurrencies like Terra can be highly volatile. Also, decentralized blockchain-based protocols like Terra have a short track record and are prone to bugs and snafus. Fei’s recent struggles to maintain a 1-to-1 peg for its stablecoin should be a cautionary tale.
Some algorithmic stablecoin projects, according to Kwon, are underperforming. Because they failed to realize the necessity of mainstream adoption and limited their projects’ use cases, such as staking stablecoins for rewards.
According to Kwon, these protocols don’t natively produce stablecoins to reward users for holding, which would be a recursive incentive.
“The views and opinions on this Crypto News Website are solely those of the authors and contributors. These views and opinions do not necessarily represent those of iBaseTrading or its partners.”