UST can’t bring the end of Algorithm stablecoins
Challenges that face TerraUSD
Since its inception, TerraUSD has been beset by a number of challenges. Perhaps the most pressing of these is the lack of widespread adoption. While the currency has made inroads in certain countries and regions.,However, it has yet to achieve the level of global acceptance that would truly make it a force to be reckoned with.
Another challenge is the volatility of the currency. While this can be seen as a positive by some, others see it as a hindrance to its widespread use.
Finally, there is the issue of regulation. As TerraUSD is not backed by any government or financial institution, it is not subject to the same rules and regulations as other currencies. This can be seen as a positive by some, as it allows the currency to operate outside of the traditional financial system. However, it also means that there is no one to turn to if things go wrong.
UST has really been manipulated a lot, due to it not being pegged to anything. TerraUSD value has dropped so much since early this year. Moreover, hope for UST as a stablecoin as it is backed by algorithms, but it seems like it is not really that stable. Government interference is also a big issue, especially in countries with unstable governments. These challenges might be the end of UST. However, there is a possibility that the value of UST could be manipulated by investors, which would lead to volatility.
Another challenge with UST is that it is managed by a central authority. Besides, this means that there is a risk of government interference or an outright ban on the currency. This is more likely to happen in countries with unstable governments.
How UST is made to remain pegged
However, an algorithmic tie with Luna, TerraUSD (UST) is meant to maintain. Besides, it should be able to do so – a one-to-one parity with the US dollar. This means that every time UST loses its peg in either direction, an arbitrage opportunity arises for traders.
The simple answer is that it all depends on how Terra's Luna token is doing. Beyond that, the Luna token is always to do well and continue ageing its value relative to the US dollar. However this will help TerraUSD to maintain its peg However, if the Luna token starts to lose value against the US dollar, then it's likely that UST will also start to lose its peg.
However, barring any major issues, UST should be able to maintain its peg so long as the Luna token remains relatively stable. Moreover, the key here is that Terra's algorithms are designed to keep the Luna token pegged to a basket of fiat currencies.
Conclusion
In conclusion, UST should be able to remain pegged as long as the Terra Protocol is functioning as intended. However, this will help the Luna token remains pegged. Moreover, if there are any unforeseen issues with the protocol or the Luna token starts to lose its peg. This will also affect UST.