Stablecoins: Tether (USDT) VS TerraUSD (UST)

By SimpleHold | simplehold | 25 Apr 2022


What’s a Stablecoin?

Stablecoins are blockchain instruments having their value pegged to commodities.

They have several undoubtful advantages for the market. Their stability helps to tame the volatility of cryptocurrencies. Investors rely on stablecoins as a way to get away from bearish markets without converting funds back into fiat currencies.

In most stablecoin cases, the token has its value pegged to a fiat currency. Some of the most well-known examples of stablecoins are Binance USD (BUSD), Tether (USDT), Dai (DAI), and USD Coin (USDC).

Terra USD

TerraUSD was launched in 2020 and became one of the top 100 currencies on the crypto market. Terra is the child of Terraform Labs, and it is the blockchain on which TerraUSD is based.

The main focus of Terra is stablecoins, cryptocurrencies pegged to another asset, mainly to the U.S. dollar. Terra is also pegged to many other currencies, including the South Korean won, the Euro, and the Mongolian tugrik.

TerraUSD uses a few simple protocols to achieve its prominent features such as scalability, yield-bearing, and interchain capabilities.

TerraUSD utilizes LUNA, the native crypto of Terra, as a reserve asset. Users who mint 1 TerraUSD will burn 1 USD of Terra's LUNA token out of the system.

There is another unique feature, TerraUSD can earn stable yield through the yield service "Anchor," which is something that other stablecoins have not used.

The Anchor protocol's users can access a lending and saving function that gives a 20% return on savings made in UST. Users can borrow up to half of LUNA they staked, with collateral for loans in a bonded LUNA token, or bLUNA, which is a staked version of LUNA that can earn rewards.

TerraUSD also has an opportunity for blockchain ecosystems to be linked, resulting in a bridging Dropship protocol. Dropship lets TerraUSD interact with other DeFi platforms and decentralized exchanges (DEX) and move between different blockchains. The Dropship protocol helps TerraUSD increase and preserve its scalability. Dropship guarantees the stable value of UST because the supply and demand of LUNA define TerraUSD's value.

As for mining, TerraUSD runs a Proof of Stake (PoS) consensus mechanism where miners must stake LUNA to mine Terra transactions. This mining process demands that the Terra network's validators stake LUNA. 

So, let’s sum it up:

  1.  TerraUSD is truly scalable and offers several innovations that other stablecoins don’t have. 
  2.  The association with Terra and LUNA provides TerraUSD with credibility. 
  3.  TerraUSD also applies yield-bearing and interchain technology. 
  4.  It has already outperformed a few competitors such as PAX and GUSD. 

 

Tether USDT

Now, Tether (USDT) is one of the most popular stablecoins out there. It serves various purposes in the market, making it a strong player in many investing strategies. 

Tether helps to provide liquidity and struggle against market volatility. It gives investors additional flexibility as it acts as a dollar alternative on popular exchanges. 

Tether also adds another option to the equation. A user can convert to Tether and avoid the fees and volatility. Tether reduces friction is another blockchain asset, converting from Bitcoin or any cryptocurrency into Tether is as easy as exchanging Bitcoin for Ethereum. This conversion introduced a frictionless way for investors to avoid volatility and remain in the crypto market.

Another perk is that USDT can be sent anywhere worldwide without being converted to funds or, a necessity paying extra transference fees.

Another advantage of using Tether as a means of payment. Businesses that pay for goods or services with crypto must estimate the value of their payment against the US dollar. Stablecoins reduce this problem by their ability to always equal their fiat counterparts. 

Tether allows exchanges with an increased level of liquidity. The token offers to deal directly with fiat currency. By doing this, exchanges can eliminate the amount of KYC and AML regulations their platform asks for.

It’s time to wrap it up by highlighting the pros: 

  1. The transaction is really fast and takes minutes. 
  2.  Tether’s stability is an obvious perk, as it’s not that volatile compared with other assets. 
  3.  It’s not expensive, as transfers between Tether wallets involve zero fees.
  4.  USDT is really easy to integrate within exchange platforms. Thus, all exchange platforms offer pairs to trade.

 

Terra VS Tether

Let’s try to compare these two stablecoins using the following points:

  • Decentralization: Terra USD is a fully decentralized stablecoin but Tether USDT, the centralized authority of USDT means you need to have an equivalent amount of USD as reserves as collateral.

  • Stability IssuesTerra USD is an algorithmic stablecoin, so to mint a new UST Token, an equivalent amount of LUNA, Terra’s native coin, should be burned and another way around. It’s a way its stability is achieved without the need for collateral. It copies the USD’s price and is backed by fiat collateral as per Tether Limited but there is no way to check the authenticity of their reserves data.
  • Speed: Terra blockchain performs hundreds of transactions a second while USDT transactions can take up to a few minutes during network congestion as it's built on the Ethereum blockchain.
  • FeesTerra USD (UST) can be transferred for a few cents including the validator fee (GAS) and taxes which are way cheaper than USDT and other payment gateways. Due to high GAS fees on the Ethereum network, USDT transactions are quite expensive.
  • Interoperability: Terra Blockchain uses Cosmos technology which is designed to build interoperable blockchain applications. Terra USD (UST) is available on Ethereum and Solana and more blockchains will be added soon. USDT is also available on many other blockchain networks, even more than Terra USD.
  • Scalability: Thanks to fast block times and a limited number of validators, Terra reaches a high scalability level.
  • Utilization: Tether is one of the top cryptocurrencies in terms of Market Cap. Lots of people use it for trading to avoid high market volatility. It's one of the earliest stablecoins and it has been already adopted worldwide. As for Terra USD, it’s fairly new and it has started getting more popularity with its LUNA because of the recent partnerships done by Terraform Labs and the launches of such DeFi platforms as Anchor and Mirror Protocol.
  • DeFi: Tether's DeFi yield varies from 2-20% APY. Anchor Protocol provides a fixed APY of 20% on Terra USD which is impressive as compared to many other stablecoin farms.
  • Foreign Exchange: A currency exchange using Terra Stablecoins is open, quick, and can be done with low fees. You can swap Terra-based tokens into one another on-chain for free.

 

Where to Buy UST and USDT?

You can buy UST and USDT from all well-known exchanges such as BinanceSimpleSwapKuCoinUniswapGate.io, and alike.

If you still don’t have a convenient option to send, store and receive your stablecoins, you can give a try a SimpleHold wallet that is super easy to use and can be both — an extension within your favorite browser (Chrome, Brave, Firefox, and Opera) and a mobile app on iOS and Android.

 

Closing Thoughts

Stablecoins are cryptocurrencies that are created to stay constant in price, making them convenient for use as a store of value and a medium between exchanges.

Here are  two key features of stablecoins:

  1. If you have stablecoins, you don’t need many international bank accounts to send crypto to their friends worldwide; you only need one crypto wallet. 
  2. Stablecoins make possible true peer-to-peer transfers without the need for third-party intermediaries to manage transactions.

USDT and UST are stablecoins that use the U.S. dollar as the backed assets in 1:1 proportion. But they have some key differences we’ve reviewed above, and it’s up to you to decide who has won in this battle.

 

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