TerraUSD Carries More Secrets than You Think! It’s a Ticking Bomb

TerraUSD

TerraUSD is programmed to create havoc in the market, predicts experts

Amid the volatility in the crypto market, the Terra crypto is rising at a blinding pace. Terra prices skyrocketed during 2021, and quite steadily became one of the most promising cryptocurrencies in the market. Several investors are now considering Terra as a proponent of long-term investment options. The digital token has outperformed several other major cryptocurrencies in the market. In fact, the exponential growth of TerraUSD has got financial experts quite worried as they predict that LUNA-driven stablecoin is just a ticking time bomb. They also feel that the TerraUSD will soon overtake Tether and USD Coin. If the growth of stablecoins getting decentralized crypto owners worried about the future prospects of their investments, the unusual growth of the TerraUSD is even more frightening. 

Experts believe that there are multiple factors that govern the dominance of TerraUSD. Initially, the UST token began as an algorithmic stablecoin. These coins can be referred to as decentralized in their primary essence of existence. A collateralized stablecoin like the USDT or the USDC is reliant on banks and traditional markets. They are governed by corporate entities with the ability to blacklist users and even capture their funds. But algorithmic stablecoins like UST do not have this risk of censorship, and also do not possess backing from traditional institutions like banks. Even after being a stablecoin, TerraUSD aims to be decentralized. 

In reality, experts are worried that TerraUSD is designed to fail because it is an algorithmic stablecoin. Generally, stablecoins of this nature can create an arbitrage of opportunities for the traders. Algorithmic stablecoins have a function that changes the amount of the balancer token required to create the stablecoin. This changing burn value is intended to create arbitrage opportunities for traders. This would mainly attract profit-motivated traders to drive the stablecoin back to US$1. Like this, there are several flawed arguments regarding the existence of algorithmic stablecoins, but it does not mean that the crypto is inherently programmed to fail. 

 

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