Terra USD (UST) is an algorithmic stablecoin built on Terra Blockchain and pegged to United States Dollar (USD). It's fully decentralized and infinitely scalable as compared to its Ethereum's counterparts such as DAI & USDT (Tether) which are lagging behind in terms of user experience. If you want to know more about Terra Blockchain and how it works, please checkout this guide by @crypto-guides - What is Terra (LUNA) coin? - Terra Guide.
Terra USD (UST) Vs Tether (USDT)
In this blog, I am doing a head to head comparison between two stablecoins Terra USD (UST) and Tether (USDT). Both of them are pegged to USD but there are some major differences between the two. In the end, we will try to analyze which one is better and why. Let's start!
Decentralization: Terra USD is a decentralized stablecoin while USDT created by Tether Limited, the centralized authority of USDT which claims to have equivalent amount of USD as reserves that act as a collateral. The company has the ability to issue as many USDT tokens as they want and they control the details of reserves as well.
How Stability Is Achieved: Terra USD is an alorithmic stablecoin. In order to mint a new UST Token, an equivalent amount of LUNA, native coin of Terra blockchain, is burned and vice versa. This is how its stability is achieved without the need of a collateral. It simply mirrors the price of USD and backed by fita-collateral as per Tether Limited but there is no way to check the authenticity of their reserves data.
Transaction Speed: Terra blockchain can perform hundreds of transactions per second. Terra USD (UST) transactions are usually settled within a few seconds while USDT transactions can take up to a few minutes during network congestion since it's built on Ethereum blockchain.
Transaction Fees: You can transfer Terra USD (UST) for a few cents which includes the validator fee (GAS) and taxes which are much cheaper than USDT and other payment gateways. Due to high GAS fees on Ethereum network, USDT transactions are expensive.
Interoperability: Terra Blockchian uses the Cosmos technology which is originally designed to build interoperable blockchain applications. Right now Terra USD (UST) is available on Ethereum and Solana. In future, more blockchains will be added. USDT is also available on many other blockchain networks, way more than Terra USD.
Scalability: Ethereum is currently facing stability issues. While Ethereum 2.0 is being implemented, it can only scale it up to a limit. Also, it will take a lot of time to happen. Due to fast block times and limited number of validators, Terra achieves high scalability.
Adoption: Tether is one of the top 5 cryptocurrencies in terms of Market Cap. Many people hold it to enter and exit into their trades while avoiding the extreme volatility of the market. It's one of the earliest stablecoins and hence got adopted all over the world. Terra USD is fairly new and it has started gaining popularity with it's companion LUNA due to the recent partnerships done by Terraform Labs and the launches of DeFi platforms like Anchor and Mirror Protocol. It is currently the 5th biggest stablecoin in terms of market cap.
DeFi: Tether's DeFi yield varies from 2-20% APY depending upon the platform you use. Anchor Protocol provides a stable APY of 20% on Terra USD which is great as compared to many other stablecoin farms.
Foreign Exchange: Doing currency exchange using Terra Stablecoins is open, fast and can be done with negligible fees. This means you can swap Terra based tokens into one another on chain for free.
Which One Is Better?
As crypto space expands due to more adoption, the need of stablecoins will increase to provide for the e-ecommerce activities. Nobody likes to buy stuff with volatile assets. Tether is the most popular among all of them for now but Terra USD (UST) is a great decentralized, cross-chain, fast and cheap option. Terra KRW (KRT) pegged to Korean won is already quite famous among South Korean users. Chai & MemePay payment apps have 2 million active pymnt users and grossing $1 billion in transaction volume per annum.
It's only a matter of time for Terra USD to get adopted by Western & European markets. Terraform Labs (TFL), the organization which created & maintains Terra blockchain, recently announced 70 million UST from the TFL stability reserve fund to boost yield reserve for Anchor protocol that provides 20% APY on UST. Terra's ecosystem is exploding because of the several partnerships done with other blockchain projects and multiple exchange listings that happened in the past month. Future of UST and Terra's stable of stabelcoins looks bright and they could take the limelight from USDT and other alternatives.
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