The $UST will be the first internet-native currency to adopt the Bitcoin standard as a monetary policy.
Do Kwon’s statements came as he discussed the Terra protocol’s monetary policy and the UST stablecoin’s growth. This is due in part to the Anchor Protocol’s approximately 20% interest rate on cryptocurrency deposits.
It stated that a near-20% interest rate is no longer possible in traditional banks. The high interest rate, according to Do Kwon, reflects the present level of profits that decentralized finance (DeFi) can provide investors.
He believes it is normal for currencies in developing economies to have higher interest rates than those in developed economies. There are also stable economies. He believes that this will serve as the foundation for the Terra ecosystem’s design and monetary policy.
Demands for UST
Occasionally, some DeFi projects have offered higher rates. At the magnitude of Anchor and UST’s $15 billion market valuation, however, this hasn’t happened. Other products, such as blue-chip DeFi money market accounts, provide rates as high as 5%. On the other hand, Compound is providing roughly 3% on DAI deposits.
Bloomberg notes that Anchor’s high rates are important in driving demand for USTs. This means that a sharp dip might put the cryptocurrency’s peg to the US dollar to the test. In addition to staking rewards, Anchor pays deposits with money gained from lending UST to borrowers.
Plummeting or Increasing Rates
However, the Anchor community recently observed that the protocol was depleting production reserves faster than predicted. It compelled to pump $450 million into it to keep rates from falling. If rates fall, economists predict a scenario similar to the one that occurred when UST withdrew from Abracadabra. This is another Terra-based protocol that caused the price of LUNA to plummet by 36%.
Do Kwon, on the other hand, is optimistic about Terra’s and the LUNA token’s future. He just placed two $11 million wagers on whether the price of LUNA would rise above $88 next year.
Sensei Algod was on the losing end of the wager. He claimed that Anchor’s returns are printed out of thin air and has branded UST and Terra a Ponzi scheme.
Continuous Growth for LUNA
To Do Kwon, if UST continues to rise, the price of LUNA will rise as well. As the DeFi industry matures, he expects Anchor’s returns to drop to 7.5 percent to 12 percent.
The Luna Guard Foundation has raised $2.2 billion for a Bitcoin reserve for the stablecoin through the selling of LUNA and other methods. Its objective for the main cryptocurrency is to achieve $10 billion.
Interestingly, data from the blockchain indicates that Terra recently purchased $125 million in Bitcoin. It linked to a Gnosis safe address, which moved $125 million in USDT to Binance, a renowned cryptocurrency exchange.
