TerraUSD (UST) is the decentralized and algorithmic stablecoin of the Terra blockchain. It is a scalable, yield-bearing coin that is value-pegged to the US Dollar.
TerraUSD was created to deliver value to the Terra community and offer a scalable solution for DeFi amid severe scalability problems faced by other stablecoin leaders like Dai. Thus, TerraUSD promises users a higher level of scalability, interest rate accuracy, and interchain usage.
TerraUSD (UST) was launched in September 2020 (in collaboration with Bittrex Global) and has since gained the reputation as the most scalable stablecoin. UST can be used in conjunction with LUNA, Terra's non-stablecoin crypto, or as a standalone token.
Do Kwon and Daniel Shin founded Terra (LUNA) in April 2019. In September 2020, they launched TerraUSD on Bittrex Global. Since that date, TerraUSD has outstripped many stablecoin competitors in the market, such as GUSD (Gemini) and PAX (Paxos). Terra is TerraUSD's own blockchain, the creation of Terraform Labs (a subsidiary of Terra Alliance).
On May 9, 2022, UST depegged and plunged from $1 to a low of $0.68.
After UST started trading slightly below its dollar peg, the Curve pool containing UST got progressively emptied — people were cashing out their UST for other stablecoins.
At the same time, short selling of LUNA drove the price of LUNA, the collateral for UST, down. This downwards price pressure forced Terra to mint even more LUNA in an attempt to stop the downwards spiral of UST.
This diluted the price of LUNA but did nothing to restore the peg. Even a $1.5 billion sale of BTC out of Terra's treasury did not succeed in restoring faith in UST. Akin to a bank run, UST holders would rather take pennies on their UST than redeem it for LUNA.