Stablecoins managed to get in the spotlight over the past couple of years, with Tether’s (USDT) dominance now fading in the face of projects like USD Coin, and Terra USD now gaining momentum.
Indeed, TerraUSD made its way past projects like Polkadot (DOT), Binance USD (BUSD), and Shiba Inu (SHIB), now taking the number 12 spot based on market cap.
However, the trading volume figures for UST are lagging as the now third-largest stablecoin in the crypto world secured “just” $261 million in volume over the past 24 hours. UST’s trading volumes were considerably smaller than its larger peers USDT and USDC, with smaller peers like BUSD and DAI recording higher daily trading volumes.
“According to CoinGecko, the market value of Terra's stablecoin UST reached $17.5 billion on April 18, surpassing BUSD's $17.4 billion, becoming the third-largest stablecoin after USDT and USDC. But UST’s trading volume is very low, only 1/5 of BUSD.” Colin Wu of Wu Blockchain noted on Twitter.
Experts came to the conclusion that UST’s increasing market capitalization is linked more to its reserves and token circulation, as opposed to actual demand for the token. It turns out that the Anchor Protocol (ANC) currently holds almost two-thirds of UST supply through staking and deposits.
The reason for the market cap increase
One of the biggest reasons for the market cap increase of Terra’s UST is the fact that the Luna Foundation Guard (LFG) has been steadily increasing the reserves which back UST by burning LUNA tokens to mint UST.
However, in contrast with regular tokens, minting new UST tends to increase the token’s market capitalization, as opposed to the usual deflationary effects of creating new tokens. Data by Terra Analytics confirm the thesis, with the total UST supply increased by about 800 million tokens - corresponding with an $800 million jump in market capital.
Despite the constant UST minting, Terra founder Do Kwon’s goal of making UST the most widely used stablecoin is far from achieved.
UST’s way up managed to surpass even one of the most interesting projects to date, the memecoin leader – Dogecoin. The memecoin, backed by people like Elon Musk, had a volatile week, with the latest downward swing erasing 5% of its market cap in just 24 hours.
Interestingly, another possible reason for the popularity surge for UST is the news that the stablecoin projects would be backed by at least $10 billion worth of Bitcoin (BTC).
In contrast, the news brought little to no bullish price action on Terra’s main token – the LUNA. It seems that the project is acting according to the market-wide downtrend, losing a fraction of its price in the past seven days, eventually reaching a low of $75.95, then rebounding to current price levels of $83.29 per LUNA token.
The downtrend pushed Bitcoin’s prices down 5% weekly - a trend that translated across the majority of the top 100 cryptocurrencies, according to data from CryptoBrowser. Only a few projects are in the green over the past seven days, with Ripple (XRP) up with 5%, Shiba Inu following suit with a 5% price increase, while Monero is preparing to attack a double-digit weekly price increase.